I understand exchange updates SPAN 6 times a day. Lets say after I take an options short-position at 2PM, I have a margin of +5 lakhs remaining in my account. Now, lets say based on the 2.30 SPAN update, my margin goes from +5 lakhs to -2 lakhs. Now assuming the broker updates the SPAN file only at 2.45 PM and a peak margin snapshot was taken at 2.40, will there be a peak margin penalty?
In other words, exchange sends new SPAN file at 2.30, broker updates it at 2.45, peak margin snapshot is taken at 2.40. In this case, when the snapshot is taken at 2.40, will the margin show as +5 lakhs or -2 lakhs? @nithin@ShubhS9@siva
@Roy, Yes this could possibly happen. However, what weâve seen is with the implementation of SEBIâs new margin framework implemented in June 2020, intraday margins rarely would go as high as youâve suggested in your example.
Its normally good to have 5-10% additional margins to cover for peak and EOD margin requirements.
My account size is 3 crores+ and Iâve seen margins go up intraday higher than this a few times.
A 10% additional margin would mean setting 30 lakhs aside and this has a huge opportunity cost involved. Would prefer that I keep these funds in the Equitas bank account where it earns 7% interest and transfer it as and when required.
Iâm trying to understand how this margin snapshot system works, so that I can optimize and reduce the amount of idle funds kept as buffer in the account.
What are the data points that the 4 random intraday margin snapshots capture?
If the snapshot is taken in between the time that the exchange sends a new SPAN margin file and when the broker updates the file (I assume there is a small lag between receiving and updating SPAN margins), what margin will the snapshot capture, based on the old SPAN margins or the new one?
@ShubhS9 I have a query.
Suppose I sold Rs. 1 lakh worth of Reliance shares from my holdings. I receive Rs. 80000. Now on that day, am I allowed to use this Rs. 80000 to do intraday trading in Reliance itself? I buy Rs 80000 worth and sell Rs. 80000 worth of Reliance on intraday basis. I take no other trade and donât hold any Reliance shares at the end of the day. Is this allowed?
Just to clear my understanding. Point 2(a) implies that if I square off an overnight short option position I can use the funds for trade under any instrument, Point 2(b) if i square off my overnight long option position I can use the proceeds to buy index/stock option and CANNOT short option , take position in futures and buy stocks in cash from that proceeds.
Point 3 implies that profits from intraday trades can not be used on the same day. However, I assume that the funds excluding profit I can use the same day. Please clarify,
Right. Margins released after squaring-off short option or futures postion can be used immediately for trading.
Right. Premium recieved from selling options can only be used for buying options in the same segment on T-Day. For all other trades you can use it from the next day.
Right. Profits will be available for trading once settled in T+2 working days in equity segment and T+1 day in F&O segment. The principal capital you have can be used again immediately.
@viswaram@nithin Under IT section 37 (1) - any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
We need to get deep into the section on what kind of penalty is allowable and what not. In the case of the Exchange penalty, itâs a trade rule where Exchange charges the same from a client who has insufficient margin through the member. If the Penalty is for contravention n of any law enacted by parliament or state legislature you cant claim business expenses. Others is debatable.
I have been hit with peak margin penalty on multiple occasions. Can someone provide a rule book or how nse calculates the peak margin?
The last expiry i got into few positions blocking 81L of my available 84L, after 30mts w/o making any new trade i was shocked to see the margin as 98L.
I would like to know if i havent changed any positions, how did the margin use jump from 84 to 98 lakhs ?
Only if the exact root cause is known, i can prepare and prevent. Or otherwise this peak margin penalty has to be approved to the business expense list for ITR purpose.
Markets falling 50 to 100 points in 30mts are normal. But if you look at VIX on 10th march, there was no sudden spikes (neither the implied volatility) infact vix crashed.
I need documentation on how peak margin is calculated.
Margins can go up intraday due to an increase in volatility. Exchanges publish SPAN files 5 times during the day, this determines the latest margin requirement. If SPAN goes up in any of the subsequent files during the day, the margin also changes. If margins go up and you donât have sufficient, there can be a peak margin penalty. The best way to cover this is to keep at least a 10 to 15% buffer margin.
But this above regulation isnât logical, we have been fighting on this saying any intraday margin increase shouldnât lead to a penalty. Like the way we give time until the next day to bring MTM losses to consider penalty, it should be the same with an intraday increase in margins. We are hoping that this anomaly which started after the introduction of peak margin in full force from last Sep will be fixed soon.
The other reason margin can go up is when you exit any one position that can increase the overall portfolio level margin. For example, if you have Buy Nifty futures and Buy Nifty puts, the margin required will be only Rs 20k and not Rs 1.05 lks for naked futures.
If you were to exit Nifty puts first and say you had only Rs 20k in the account. The margin required shoots up to Rs 1.05lks and you would have only Rs 20k or a short margin of Rs 85k. This will lead to a penalty. So if you have multiple F&O positions, you need to ideally exit the short option or futures positions first to avoid this from happening. Or else ensure that there is sufficient margin to hold the position post exit of any single position which might remove a hedge or reduce margin benefit.
