please check the attached screenshot, it seems like HDFC Sky is charging interest on collateral margin for derivatives. Since the margin is provided by the clearing corporation, does it mean HDFC Sky is engaging in theft-class of activities? By charging interest for money they’re not lending at all.
(In fact the clearing corp doesn’t actually lend any real money, they just take our stocks as a security and mark our accounts safe to proceed. Or something simillar…)
I’d like your opinion on it, especially the Zerodha people, and professionals, is it a fraudulent activity charging for what they aren’t lending at all or am I missing something?
When you pledge non-cash securities and use the collateral, the exchange requires 50% cash margin for the collateral utilised. The broker’s funds are blocked if you don’t have cash in your account. We allow you to fully utilise this and charge 0.035% daily interest (12.775% annually).
For cash equivalent securities (liquid collateral), you don’t need to margin 50% cash to avoid interest.
At Zerodha, this is how we have computed for collateral margin utilisation since the beginning. We are unsure how HDFC Securities was charging earlier and if anything has changed recently.
Thanks for the answer. They told me in an e-mail that they are providing the margin not the clearing corporation, so it means they are misusing their position as broker to not let clients use exchange benefits in order to lend their own money. Or maybe they lied about that too, who knows? Either way, it’s fraudulent.
I don’t have account with them, but if that’s true, then it’s not even worse, because they’d be charging interest money on what they’re not lending at all.
@VijayNair Mentioning upfront doesn’t mean you can charge for what you’re not providing, or misusing your position to sell your product. It’s called unfair trade practice, a politically correct word for fraudulent, and is supposed to be taken action against.
Pretty sure the broker can charge interest on his own terms. He is taking on risk by providing margin. In the end it is the broker who is reponsible after all. I dont think its illegal.
Doesn’t mean I agree with the practise. I like interest-free
What risk is they taking? The shares are already pledged, if the position makes a loss, they can cut it and sell the shares to cover the loss, what risk is there? And risk mitigation doesn’t work this way, if that was the case, Zerodha would’ve done it years ago, they’re the most risk-averse brokerage firm to my knowledge. It’s not about liking or disliking interest-free, are you understanding what’s being discussed here? Noone is lending any money, and if money is not being lent, why is an interest being charged?
If it was about charging interest for non-maintenance of cash balance, which the broker would have to cover using their actual real money, it would have been ok, but they’re saying they charge interest on the total amount, like the margin which the exchange is providing, they charge interest on that, how is charging interest on money you’re not lending any legal?
I know what’s being discussed. IMO it isnt illegal for the broker to charge interest. Both ICICIDirect and HDFCsec have been doing this for a long time.
That is because noone’s ever brought it to attention. If it was, it must have been banned by regulators. @nithin, what do you say? As you have presence among regulators, should you say if it was being discussed there, that “even though they’re not lending any money, they may be allowed to charge interest on it”, isn’t it inherently totally wrong to do?
I’m sorry I never said charging interest for money you lend is wrong, I mean, I love jewish people and their mostly sought after business is lending money (or things) and living off the interest (or rent). But if they’re (brokers) not lending anything, how can they ask for interest on it?
Broker can at his complete discretion decide how additional margins (including special margins) are levied. I think some bank brokers give margin like a loan and treat the equity/cash collateral like any other collateral for loan disbursement.
Yes, that’s alright, in case of MTF and Loan Against Shares, but do you really think that misusing own position to prevent clients from taking margin from exchange and instead disbursing that as a loan is fair? Does not that seem any wrong to you?
Definitely. I wouldnt trade and carry overnight positions with such entities.
I have an account with ICICIDirect only for intraday trades (no interest if you dont carry) and for diversification. HDFC Sky too might be similar.
HDFC and ICICI, both banks are same there. I recently also found that Kotak’s intraday trades are not totally free, they charge a higher exchange transaction rate to compensate for the free trades, I actually checked my contract notes and confirmed this. Bank brokers really are so bad.
50% of the margin required for F&O has to come in cash, and the remaining 50% can come from collateral (stocks pledged with CC). If the 50% margin isn’t available as cash, the broker’s own funds get blocked, and hence, the broker potentially can charge interest. This has been the standard practice.
If you have 50% in cash and 50% as collateral, and if the broker charges interest on the 50% of the collateral margin, that is strange. But I don’t think it is illegal, if a customer signs up for those terms.
