So Futures and options writing are not actually real cash transaction (but margin transaction) & Option buying is only real cash transaction (because real cash required) but entire F&O segment is considered as Non speculative as per taxation, it does not discriminate option buying as something else.
& after your explanation I feel - futures and options writing should be considered as speculative transactions atleast for taxation.
Do Margin means - Money but without cash?
(so pledged share margin is a Money without real cash for buying)
A real asset is pledged against unreal money (margin) - As this money is not allowed to buy.
Money & Cash have two different meaning?
When it’s about intraday then why not to hold margin money for buying and if by any reason client wants to convert this to CNC then surely ask for entire Premium amount as Cash or just square off the position as per cut off.
After square off any deficit EOD MTM then collect from client similar to futures and option writing & charge interest of 0.05% per day if unable to collect MTM deficit?
One main thing with options is premium can become zero in one day, suppose you have 1 lakh worth stock, after haircut you got 90k as collateral. Imagine if you bought options on expiry day worth of 90k, it can easily become zero, and at same time if pledged stock has fallen 20%, the risk of client losing more money than what he pledged is immense, this can result in major defaults and can result in systemic risk.
You have witnessed this many times in last one month. Yes, this is not often but most optimistically let’s take it can happen once in 100 days, point is not to be screwed that one day because it can result in total damage to every participant.
Bro if you are this much concerned about collateral margin for doing things like buy options just take loan against shares from NBFC , pay interest and do whatever you want, spend it , save it ,withdraw it.
Loan against shares is similar to pledging of shares
Difference is pledging is free
Taking loan against shares requires paying interest
Every route is legal
Traditional brokers provides every route
But little high brokerage
Say someone buy a Bank nifty call for 1L , BN goes down by 200 points , your call will be 50k .
It can goto 10k as well if you had bought far OTMs.
This is not a once in a month thing , these things happens at least once in a week.
Logic of Not Allowing the buying of options with Pledged stocks is for Buying the options every brokers will deduct the outflow of Total premium amount, meaning we need to pay the cash for buying the options.
Pledged margin doesnt mean this is actual cash, this is the loan provided by the broker based on your holding, once the pledged shares liquidated only then you will have the actual cash which is allowed for buying the options.
Also you can sell the options with the pledged margin as well
In F&O pay-in/payout is T+1, therefore there is no immediate payment to the seller. That is why we have MIS type trades. I have been working with other brokers for many years. This has never been an issue with anyone of them. I strongly feel that your regulatory team might have misunderstood the circular. I urge you to look into the provisions once more. Confusion could be because, option buying entails zero margins.
This is a suggestion, As a broker you could block 100% of option price in pledged margin against purchase to cover your risk. Hope you will convey this issue to some senior person for a practical policy on option buying in MIS.