[quote=“Ashwin_kumar1, post:18, topic:147712”]
This would have been useful information 5 comments ago 
[/quot
5 comments ago, I thought I had expressed my opinion very clearly that I had a similar doubt and a user explained the concept to me. I hope the author of the post understood and that is all it matters. This was quite straightforward.
So when you pledge shares for margin through the broker to the clearing corporation, the CC, after applying the haircut, provides the margin to the customer account.
Until a couple of years, when the customer used to pledge, the shares would move from the customer to the broker account and then pledged to the CC. As you can imagine, the customer would take a broker risk with this. This is why the pledge-repledge mechanism was introduced, where the stocks remain in the customer demat, and the broker facilitates the pledge to the CC.
What the CC requires from every customer who uses the margin from the pledge is that for any position taken, 50% of the margin should be in cash, and 50% can be used from the pledge margin. As you can imagine, this reduces the risk in the system of the pledged stocks’ value dropping quickly.
So if a customer pledges stocks and takes a position using 50% or lesser as pledged margin and the remaining 50% using cash, there is no additional cost to the broker. So no interest should be charged on this.
But if the customer doesn’t have 50% in cash, even if there is enough margin through pledging stocks, the shortfall in cash% is blocked from the broker’s funds. So this becomes a cost for the broker, and hence the broker will charge interest on this shortfall.
For example, if I have Rs 90k as pledged margin and, say, Rs 40k in cash. I take a position worth Rs 90k. Rs 45k in the pledged margin will be used, and Rs 45k in money will be blocked. Since I have a total margin of Rs 1.35lks (90+45), the order will go through, but since there is a shortfall of Rs 5k in cash required for the position, the broker funds up to Rs 5k will get blocked. The broker might then end up charging interest on this Rs 5k.
Historically, even on this funding of cash portion, some brokers weren’t charging any interest. The reason for this was that there was no requirement that the broker’s funds needed to be used for this. Potentially, the broker could use another customer’s idle funds to fund another. But this had to be stopped early last year after the change in regulations, and now one customer’s funds can’t be used for another in any scenario, and almost all brokers now charge interest on this financed portion.
I have wide doubt. @nithin
I pledge my shares and using the collateral I buy shares under MTF. Now the person who sold the share needs to get the money. But I didn’t give money but shares as collateral. So does broker uses its funds to settle cash for other party for sold cash.
In T+5 days for the payment in traditional brokers. Does the broker pays the funds for settlement. So broker uses cash to make payment for other party at t +2 .
I heard broker’s also give FD and government securities as collateral. So in t+2, who will pay money to counter party who sold me shares when broker also have given collateral than cash.
I have this question from long time in my mind.
few questions
In T+5 time to make the rest of payment. The stocks are held in unpaid securities demat account. Will the broker use his own money to make the payment to clearing exchange.
When I pledge my stocks to take stocks or position. Is 50% in fno given by broker when through my stocks is given as collateral to clearing exchange or broker need not give 50% from there side because I have 50% collateral and 50% cash.
Under MTF. Even through my stocks are pledge and give as collateral to clearing house. Is broker the one who pays for the margin.
In MIS, even through my stocks are pledge, is broker giving the money from there side.
In traditional brokers, I pledge shares to get margin against securities. Same is repledge with clearing house through CM. Now when I buy shares using the margin, using CNC, is brokers giving its own money to clearing house and CH sees my pledge margin as collateral.
In my traditional broker, I pledge Lic And buy shares using CNC or NRML. I have 5 days to pay for the securities or pledge it for 90 days MTF. Is broker the one who pays for margin in pledge .
Also if I use payment gateway, money comes next working to broker. So broker use its own funds. But who will it inform exchange money is transferred to client tagged broker demat to exchange so there is no penalty.
Also zerodha, I would be happy if operations of zerodha and demat blogs are made so we have more information
When you pledge shares, the broker is lending you money. When you buy shares under MTF, the broker is again lending you more money. The money lent to you go to the seller and the broker charges you interest until you bring in your own money for the shares bought with leverage.
There isn’t any T+5 anymore. Also, the settlement for equity is T+1. So, if you have bought stocks, say in MTF, paying only 20% as margin, on T+1 EOD, the broker will have to put up the remaining 80% for which the broker will either charge an interest rate or a percentage brokerage.
When an equity settlement happens, you have to pay cash to the exchange. Collateral is given only for the purpose of margin and not for settlement. So on the trading day when you bought stocks, a margin is blocked. On T+1 day when settlement happens, the entire cash has to be given to the clearing corporation for settlement.
Yeah, as explained above.
Explained here
The customer has to pay the margin; for example, to buy Rs 1lk worth of Reliance, you need to have at least Rs 20k as margin with you. On the settlement day, the broker pays the remaining 80%.
No, in MIS broker isn’t giving margin. It was possible before, but not since 2021, because intraday leverage restrictions were put in.
Yeah, as explained in the earlier question.
Is your broker still offering this T+5 days thing? Ideally, they shouldn’t be. If you hold anything after T+1, it should be in MTF. @VenuMadhav Am I right on this?
Most payment gateways settle on the same day, but yeah, many do it on T+1, and until then broker’s funds are blocked. This is the working capital requirement to be a broker. A broker can allow a customer to trade only when the payment gateway confirms that the transaction is successful and money is on its way. So that way, there is already clarity to the clearing corp.
Our support portal is quite extensive. You can check it out.
You can also search for queries on Tradingqna.
Thanks for the reply. I never expected CEO to reply. I’m an client of zerodha from 4 years, my mother and father is also.
I have gone through all the sebi documents, brokers operations, cdsl and nse operations documents to get more information before I wrote here
I use Aditya Birla Money as broker for long term. As I want to avoid FIFO in zerodha, I use zerodha for short term, so I can take advantage of long term capital gains.
T+5, my shares are held in client unpaid securities pledgee demat account for 5 day’s. This is what I know from my broker.
So in FNO, when I sell my futures which I brought using the pledge liquidbees which act as cash equivalents. Broker gives the funds for counter party for us selling the futures. When I sell it in profit. The other broker of person buying gives cash to CH to settle the trade and adjust losses with buyer, by innovation of pledge shares or to get shortfall in t+1.
I loved the zerodha z- connect and support portal. What I meant is more vlogs on operations and what happens in backend. I bet many people like me are curious to know what happens in backend.
I have been curious how bank guarantee works. You people invest client funds in overnight mutual funds, give banks etc for interest. Do you create an FD with bank for interest overnight for 1000cr example and then morning FD is over. Or do u create short term FD for interest, then take bank guarantee from it for 1000cr and give it as collateral in name of client to clearing house. Will gives give bank guarantee after FD haircut or in higher amount say 2000cr.
Is there any way I can sort FIFO. I buy reliance for long term. But in middle I get opportunity to buy reliance for shirt term say 2 month’s. I have to use two different demat accounts else earlier stocks will be sold off and I have to pay huge short term capital gains tax. So two demat accounts two uses.
I may be wrong in this. I wish to move all the shares zerodha both for long and short term.
Also I used to pledge my shares for collateral. Buy shares in Aditya Birla money using the pledge collateral. Then by t+1 I need to do margin pledge of i need MTF for 90 days or else if I don’t margin pledge. I need to get capital by t+5 days to get shares and no interest was charged for t+5. Last time I got long term was in November last year. My shares would be in client unpaid securities demat account.
Also In IPO process, many times I keep mandate on last day. After 4pm I do the mandate, it comes as pending or sometimes money is blocked but mandate is not done and can’t do it again . Or sometimes due to error and can’t do another mandate . As after 4pm on 3rd day even zerodha is also helpless as one more bid can’t be done.
Wish you can take up with npci to send new mandate of one mandate fails. I have 17 zerodha accounts of family members and I experience this. Is common across all brokers.
Also to my above I do have couple of other traditional brokers but for research reports. Like HDFC gives good ipo research report. ICICI gives long term stocks research report. I buy goldbees to keep it active. But no amc or anything…free research they provide and buy in zerodha😅
SEBI has now disallowed brokers to place bank guarantees with the clearing corps. This is because BG, in a way acted like leverage for the broker. Essentially bank guarantee, the value over the FD value parked as collateral is loan from the bank. The BG limit that a bank would give would be based on the financials of a broker, just like a bank loan.
Hmmm… this isn’t possible. Btw, doing it through two different accounts and considering the same stock differently for capital gains is also a slightly regulatory grey stance to take.
In case a mandate fails due to errors or an incorrect PIN, cancelling & placing a fresh application will trigger a new mandate. If you are waiting till 4 pm on the last day because you want to check the subscription numbers before you apply, an alternative for you could be to apply for the IPO and accept the mandate on the 1st/2nd day or early hours on the 3rd day itself.
If you decide not to proceed with the IPO applications, you will have the option to cancel the bids before the IPO window closes on the last day.
P.S. This is not applicable for HNI bids (more than Rs 2 lakhs) since the IPO applications cannot be deleted.
I think a workaround could be possible. If you pledge the long term holdings and keep the short term holding in unpledge status - then I assume when you place a sell order the qty in the unpledge status would be sold first.
@ShubhS9 - can you clarify?
Nah. Doesn’t work that way. Still fifo will be considered.
So an FD is created using client funds and pledge with clearing corporation. This way brokers earn float and all the funds overnight sits with clearing house.
Basically there is no risk of funds misuse. After new upstreaming rules. Brokers should do payout same day as they can’t keep idle funds. Is system changes made.
I was not allowed to cancel after 4pm. Is cancellation time 4pm.
The retail window closes at 4:30 pm & the HNI [bids above Rs. 2 lakhs] window closes at 4 pm. If you are applying in the HNI category, regulations anyhow don’t allow deletion or downward modification of bids. You can only increase the bid amount in such cases (up to Rs. 5 lakhs with UPI applications).
Even in this case, when the average price is calculated, it is based on FIFO (First In First Out) method. Had answered a similar query here: Selling Stocks without un-pledging - #15 by ShubhS9
So I have no option to use two broking accounts. As Nithin sir told it’s regulatory grey area. I maybe in trouble as per tax issue in future.
I have reliance got at 1000 and holding till now in other broker. In zerodha using my mother account I buy reliance for short term many times …approx 3 times this financial year. I many times hedge my short term holdings in zerodha.
Is it an loophole and will tax issue arises.
So an FD is created using client funds and pledge with clearing corporation. This way brokers earn float and all the funds overnight sits with clearing house.
Basically there is no risk of funds misuse. After new upstreaming rules. Brokers should do payout same day as they can’t keep idle funds. Is system changes made
Can u tell this…sebi started new upstreaming rule to be followed in July 1st.
SEBI had issued this circular ^ in which it was stipulated that unpaid securities be pledged to the Client Unpaid Securities Pledge Account (CUSPA) for 5 days, and if the client doesn’t bring in the funds, the securities be disposed off to recover debit. Manu seems to be referring to the provisions of this specific circular.
However, I don’t think the intent of this circular is to offer T+5 funding 