NSE Circular: Updated margin penalty guidelines

[Sanjukumar.K]

@appendse

I wish your guidance on following situation that I face many times. Suppose I have both long and short positions open in current expiry on expiry day (Which expired as OTM worthless positions) and also some open short positions in next week expiry. All open positions (Both short and long) of current week were SIMULTANIOUSLY auto closed by the exchange, leaving only next week open short positions. In such a scenario, whether effect of auto closure of BOTH short and long legs will be considered or effect of closure of only long positions would be considered to determine whether there was shortfall of margin requirement for open next week short positions?

The EOD margin is charged only on the EOD open positions as per the margin requirement criteria set for such positions. The margin blocked for short open positions expiring in the current week is released only by EOD. This released margin is then considered towards the shortfall of open positions, which may have been caused by the expiry of the long side options and the removal of hedge benefits.

@appendse

If you consider closing only long positions then naturally there would be margin shortfall for next week open positions, but if you also consider closure of short positions then that would release lots of margin leaving and overall effect of closing ALL current week open positions would be to leave enough available margin to take care of open short positions of next week.

The margin released from expired short positions is accounted for when reporting the margins of open positions.

@appendse

According to my understanding, hedge break and margin shortfall occurs only if I close long position BEFORE closing some short position, but here since both long and short positions are closed simultaneously, this should not be considered as hedge break resulting in margin shortfall.

Closing the short side always releases margins, but if the margin increases for open positions due to the expiring long-side options exceeding the margin released from the short side, it will lead to a shortfall. This will be considered a loss of margin benefit, also known as a hedge break.

@appendse

Also, if there was no margin shortfall for overall open positions at close of market (Since short positions of next week were allowed and taken based on margin released by squaring off some short positions of current week) – Then can closure of ALL current week positions lead to shortfall of margin requirement for open short positions of next week?

In today’s case, if a calendar spread margin benefit is received for the trade, it is removed at the start of market hours on the expiry day of the hedged contracts. The margin blocked on the front end for the short options will reflect the post-margin benefit margin requirement.

This is in line with SEBI regulations effective February 1, 2025, where the calendar spread margin benefit is not available on the expiry day. Read more here:

SEBI's circular for tightening rules for F&O trading

In July, SEBI had released a consultation paper to tighten the rules for trading in the F&O segment on the back of a massive surge in speculation in the markets and to safeguard retail investors. SEBI has now released a new circular on what all changes will be made and when these will come into effect. Upfront collection of Option Premium from options buyers To avoid undue intraday leverage to the end-client, and to discourage any practice of allowing any positions beyond the collateral at …