Mandatory 50% cash margin rule for trading impacting the pledged collateral margin trading

Hi Zerodha,

I heard the below news two weeks before.
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Securities and Exchange Board of India (SEBI) has postponed the implementation of the 50 percent cash-margin rule for futures and options (F&O) traders and credit-default swaps (CDS) segment to February 28, 2022, from the earlier deadline of December 1, 2021.
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I have few questions related to this !

  1. Is this mandatory 50% cash margin rule is applicable even when pledged cash component securities like liquid ETS, Liquid MFs or Sovereign Gold bonds ?

  2. Is the below attachment having cash and non cash component definition given by SEBI or Zerodha defined ?
    Approved list of Securities at Zerodha. - Google Sheets

  3. Why Floating funds cannot be under cash component securities list ? Floating funds are also like Liquid funds only right !

No changes in this. These securities will be continued to be considered as cash equivalent.

The securities that form part of cash and non-cash list are decided by the Clearing Corporation.

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If Pledge liquid funds for 2L and ITC for 2L. After haircut, I may get 1.8L(approx.) as cash component collateral and 1.7L(approx.) as noncash component collateral.
When I want to do option selling with margin required is 2.5L for which 50% can be from noncash collateral and rest 50% from cash component collateral right even after Feb’2022 ? It will not look for actual cash in my account balance right ?

@ShubhS9 @nithin does this means currently SEBI doesn’t has hard rule to maintain 50% margin as cash? If yes, can you please answer followings -

  1. Why Zerodha forces us to maintain 50% cash component? There are many brokers in market who don’t demand this.
  2. What about the penalties which we have been charged for not maintain cash component even though non-cash component margin is available? I doubt SEBI/NSE would have imposed any penalty on us in this case, but Zerodha does. Can @nithin @ShubhS9 throw some light on this?

The 50:50 rule has been existing forever. What the new regulation mandates is that you can’t use one client’s funds to fund another client. Which means every broker has to now mandatorily use their own propreitary funds to fund another customer. While in spirit brokers shouldn’t have used one client’s funds for another, it was not being followed. This is also the reason why brokers would lend money for this purpose without any cost. We have never lent customer funds to another customer, so the funds we lend always came with a cost, which is what we recovered by charging an interest to the customer for the portion that we were funding (it isn’t a penalty, it is an interest cost). With this new regulation, almost all brokers will end up charging interest, since money comes from their own pockets now, unless of course the brokerage charges are high enough to cover for the interest cost.

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I would be happy to see if someone answers my above question…

Yep, you are right. Liquid funds are treated as cash.

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Thank you so much for answering with humble !

if this 50:50 rule has been there already, then how come few brokers are able to by-pass this rule? I do have a trading account with an another broker where I have only pledged equity MF and I use entire 100% margin amount for f&o intraday and overnight positions.

Like I said, at the clearing corp this 50:50 rule has always been there. But this, because it is a pooled account, would mean that if one customer had a free cash balance parked and another had only collateral, brokers could use one person’s cash to fund another person. The new rule isn’t 50:50, the new rule is that customer funds at clearing corporation now needs to be segregated. This means brokers can’t use one client’s free fund for another client, which means brokers have to put their own funds. If a broker has to fund it, there is a cost to it, so all brokers will either start charging interest on this (like how we do) or charge higher brokerage charges for derivative trades.

is that rule applicable for intraday fno also or only positional will require 50% cash component?

50:50 Cash - Collateral requirement is only for overnight positions, not for intraday.

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So after feb 28th 2022 also there will no requirement to maintain 50% cash or cash equivalent for intraday trading in FnO? just like now its not required…please clarify it, since other broker already started asking for 50% cash for intraday and that creating big confusion. I’m using Zerodha and other broker for intraday trading and zerodha is only broker currently allowing to trade with 100% collateral money.

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Right. For intraday you can utilise 100% of the collateral margin. There won’t be any interest charged. The 50:50 Cash - Collateral requirement is only for overnight positions.

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Even though Cash available goes in a negative, there will be no interest…right? For intraday?

For intraday there will be no interest.

Is there any change for zerodha users?
I have only 30k cash. Remaining 5 lakh is pledged equity. I take overnight positions on 3 lots each side generally. Cash is negative but margin is positive. And I’m happy to pay interest.
Is this going to be stopped?

Nothing changes for you. You can continue to utilise the margin like you currently do.

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Will Zerodha squareoff my Intraday straddle position if negative cash balance exceed? or no problem unless available margin is positive?

No problem till available margin is positive

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