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

[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.

[shankesh_shah]

Hi, @VijayNair Thank You for clearing my Query.

[A_K_RAGHAVENDRAN]

50% cash margin rule not required for intraday. It is applicable only for overnight positions.

[KarthikAcharya]

Yup, my bad missed the intraday part. 50% rule doesnt apply for intraday

[pankushri]

@ShubhS9 I see the Large and mid caps are allowed as cash component in kotak securities. is this mean Clearing Corporation started allowing Large and Mid Caps?

WHy is not there on Zerdoha?

Sample from Kotak

[ShubhS9]

@pankushri

@ShubhS9 I see the Large and mid caps are allowed as cash component in kotak securities. is this mean Clearing Corporation started allowing Large and Mid Caps?

WHy is not there on Zerdoha?

These mutual funds are not considered as cash equivalent by the exchange. You can check the latest exchange list here.

[pankushri]

Then how come kotak is allowing?

Also, gone through the exchange list which Says

Annexure 4

List of Sovereign Gold Bonds/ G-Sec / T- Bills to be accepted as collateral that will form part of the cash component of liquid assets
All SGB/G-Sec/T-Bill issued by RBI during the month shall be accepted from the date of issue.

T-bills can be pledged as cash component, but in zerodha i do not see option of pledging.

[ShubhS9]

Currently we do not allow pledging of T-Bills. There are some complexities involved in unpledging T-Bills nearing maturity. Hence not available for pledging. We’ll look into this and check on the possibilities of making them available.