no. There is no loophole here that can be misused.
If we become member at nse.
How does settlement works ?
Where does NSE keeps member’s capital (i.e.broker keep client’s capital in trading account) ?
This has to be kept with the clearing corporations. You will need to get yourself a backoffice platform to do trade process, paying exchange dues, meeting exchange compliance requirements. You will have to get yourself a trading platform infrastructure (currently BSE gives one, NSE has stopped NSE NOW that they used to offer before. You will need a compliance officer who can ensure that you don’t break any rules. All of this makes sense only if you are trading atleast with 10’s of crores. Doesn’t make any sense to do it if it is smaller amounts of capital.
Does it makes sense even in 10cr. One reason one might want to do this is to get float income but he can achieve it by pledging FDs. Do you really see any benefit having membership even say someone have 15 cr to trade . Maybe trader might be able to maintain secrecy of his trades (reason I see for someone to take this route)
The minimum cost of running an alpha membership will be atleast I think 40lks per year (cost of a few people, CA, compliance, backoffice/trading platform vendor) and there is also regulatory risk if being non-compliant in something. Btw as a broker when you place margins with the exchange, you can utilize a maximum of 85%, beyond which the exchanges only allow exiting positions and not new entry. Which means that you won’t get the leverage of using 100% of the capital that you get with a broker today.
So yeah, the choice would not be just based on capital, but based on brokerage being paid as well I guess. As a trader, you’d want to not be bothered about everything else apart from trading, which you will be as a member on the exchange. With all the new SEBI regulations in place, the only reason to become a member on NSE is if you are a Pvt Ltd company and want to trade the markets without getting an NBFC license. If not, doesn’t make any sense now. Or maybe if you are like this super HNI who has a lot of money and don’t want to park it with the broker.
Can a pvt ltd company or LLP just invest in equities (no intraday ans f&o) without an nbfc licence.
For example, an RIA firm having equity capital (as per sebi norms), can this be invested in cash equities?
Also, are the capital gains here taxed at 15% and 10% just like individuals?
hmm… no, the same rules apply irrespective of equity, intraday or F&O.
Yeah. Same rate. Check this
Do pms having 5cr networth and mutual funds 100cr networth as per sebi norms park the money in FD then?
Networth in capital markets are usually calculated using the LC Gupta format.
L.C.Gupta Format for Networth Computation
Capital + Free Reserves
Less: non-allowable assets
(a) Fixed assets
(b) Pledged Securities
(c) Member’s card
(d) Non-allowable securities (unlisted securities)
(e) Bad deliveries
(f) Doubtful debts and advances*
(g) Prepaid expenses, losses
(h) Intangible assets
(i) 30% of marketable securities
- Explanation – Includes debts/advances overdue for more than three months or given to associates.
I] Point no. (b) Pledged securities
Pledged securities should be deducted at book value
II] Point No. (i) 30% of marketable securities
(1) Marketable securities are to be valued at book value or market value, whichever is lower. The haircut of 30% shall be applicable on the book value or the market value, whichever is lower. Considering this, the point (i) is reproduced as below:
“30% (of Book value or Market Value, whichever is lower) of marketable securities”
(2) Pledged securities are not to be considered at point no.(i)
(3) Securities held as stock-in-trade, are not to be considered at point no.(i)
If traders has 10 or 50 or even 100 crore and want to trade with zerodha trading account.
Do they face any problem or limitation from Zerodha ?
I read somewhere that user can place 200 orders per minute and 2000 orders per day.
Will you remove 2000 order limit per day for particular trader ? And just keep 200 orders per min.
There is a rate limit we have set: 10 orders per second, 200 per minute, 2000 per day. Up to 25 order modifications per order.
This is to ensure that no one person intentionally or unintentionally is adding a large enough load to affect the systems and other users. All our rules are standard for our customers. We don’t really see why someone trading with us will be firing more than 2000 orders a day, and maybe we can make an exception on some random day if a request was made. But we cannot really remove this rule as such.
No limitation apart from the Open interest related restriction we have if trading options.
Isn’t this too less for someone trading multiple leg options strategies using api/algo?
Or is there some higher limit for order fired via algo/api?
It is sufficient unless someone does HFT (High frequency trading) type of strategy. And we don’t intend to cater to that audience.
Just to clarify, do we need NBFC licence for OPC and LLP too or just for Pvt Ltd.?
No @anon75004691 we dont. and as a matter of fact, LLPs and OPCs are legally not authorized to run an NBFC business in India, so you cannot even apply for NBFC if you are an LLP. But you can open a Demat a/c and do stock / derivatives trading if you are a resident LLP or OPC when you are using your own funds.
This is as far as I know, but please consult a CA before you get started.
Thankyou for the reply, so one can trade in equity and derivatives but not invest( which means any stock held for more than a year?) right? So, swing trading using cash should be fine even with LLPs? ALso can LLPs invest in other assets such as MF, Gold, Land, Vehicles?
You can do all of that. and buy/sell stocks of a pvt/pub ltd company. But only using its own surplus funds. I believe the term ‘cannot invest’ refers to accepting deposits/investments from clients for the purpose if investing, which makes it an NBFC. This is not allowed in case of an LLP.
If you are using your money held in the LLP’s bank account to trade, buy stocks or MFs, land or any other assets you are okay. But please double check this with a CA before wetting your feet.
Nithin I’ve got a bit of confusion here. If I trade only in F&O using solely my cash (no FD, MF or shares) will I still need to apply for NBFC license with RBI, in case of a Pvt. Ltd. Company?
Yep, if you are a pvt ltd company, if more than 50% income is from trading (any financial income), u would need NBFC license.
If I use my pvt Ltd company to buy shares of private companies, invest in startups etc will it still be a issue.