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

[nithin]

@Trading_143

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 ?

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

[Trading_143]

Thank you so much for answering with humble !

[sachinsp15]

@nithin

The 50:50 rule has been existing forever.

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.

[nithin]

@sachinsp15

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.

[kaushik]

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

[ShubhS9]

@kaushik

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.

[Vijay_Pawar]

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.

[ShubhS9]

@Vijay_Pawar

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

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.

[Lakshya_Finance]

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

[ShubhS9]

@Lakshya_Finance

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

For intraday there will be no interest.

[emrys11]

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?

[ShubhS9]

@emrys11

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.

[Lakshya_Finance]

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

[emrys11]

No problem till available margin is positive

[emrys11]

@nithin

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.

Was there a further clarification to this circular? I saw another reply of yours from a month ago where you say that you might have to stop funding it with your own money altogether! Did SEBI clarify that 50% cash has to come from the same client and not even from brokers own funds?
@nithin

[nithin]

@emrys11

Was there a further clarification to this circular? I saw another reply of yours from a month ago where you say that you might have to stop funding it with your own money altogether! Did SEBI clarify that 50% cash has to come from the same client and not even from brokers own funds?
@nithin

The circular implementation date got postponed by 3 months. It is now June 1st. Currently there is no issue if the broker funds from own funds.

[shankesh_shah]

Hi, like the majority I sell options and It is already mentioned in the thread that 50:50 Cash Margin need not to be maintained for Intraday Position and this is for positional option selling only.

Still asking for an update whether this is rule is continuing or there has been changes in 50:50 Cash Margin rule for option selling.

Can I take intraday options selling position with say 25% Cash Collateral and 75% from Equity Mutual Funds. All positions being strictly Intraday only. Will I have to pay interest for intraday position in above scenario.

Also take MIS Trade or NRML

Thanks for indulging me in advance.

@ShubhS9

[KarthikAcharya]

Hey @shankesh_shah

The exchanges require that 50% of the margin for F&O positions must be in cash or cash equivalent collateral, while the remaining 50% can be in non-cash collateral margin.

You can check on this link to understand more on pledging.

[VijayNair]

@shankesh_shah

Can I take intraday options selling position with say 25% Cash Collateral and 75% from Equity Mutual Funds. All positions being strictly Intraday only. Will I have to pay interest for intraday position in above scenario.

Yes you can, even with 0% cash collatral. 50:50 rule is not applicable for Intraday.

[shankesh_shah]

Hi, @KarthikAcharya Thanks for your response. I have been doing option selling since last 4 years so I am familiar with pledging and the 50% cash margin rule. However, I used to do positional selling only, thus I was following the 50:50 rule diligently.

However, now I am moving away from positional selling and persuing Intraday trading only, so had a query about whether 50% cash margin rule is applicable to Intraday also.