Explainer: Vijay Kedia stock, Adani Power among over 1,000 other scrips knocked out of acceptable NSE collateral list. What it means
Over a 1,000 stocks, including Vijay Kedia-held Atul Auto and Adani Power, are to be impacted as the NSE has revised the criteria for securities that can be used as collateral in margin trading facility.
Under the new rules, NSE Clearing Limited (NCL) will accept only those equity securities which fulfill the following two criteria one is equity shares which have impact cost of up to 0.1% for an order value of Rs 1 lakh and the second requirement is that they should have traded for at least 99% of days over the period of previous 6 months.
The impact cost is the cost of executing a transaction for a predetermined order value.
What is collateral?
Margin Trading Facility (MTF) is the facility given to the traders to increase their buying capacity of shares and securities by payment of only a small amount the margin. Hence, it is simply a leveraged position in the market. Margin can be in the form of both cash and shares as collateral.
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Traders who want to buy a security can pledge securities from the MTF pool with the broker who will repledge it with the clearing corporation.
Which stocks will be impacted?
In all, there are 1,010 securities that will be impacted by this move. Among the ones, that will be impacted are Adani Power, Yes Bank, Suzlon, Hudco, Bharat Dynamics, Bharti Hexacom, IRB Infrastructure, NBCC, Go Digit, Tata Investment, One 97 Communications (Paytm), Hindustan Construction Company (HCC), Vijay Kedia-held Atul Auto, Barbeque Nation and Inox Wind. They will not be accepted as collateral.
What is the implementation date?
Equity securities not fulfilling the said criteria shall not be accepted from August 1, 2024. It will not be done in one go but in a phase-wise manner.
In order to enable clearing members to replace the existing un-approved securities, NCL will have to continue to provide valuation of existing un-approved securities repledged with NCL as on July 31, 2024, after applying the haircut.
Month-wise applicable haircut
111658596
What is the significance?
It is a periodic revision that is undertaken by the NSE for stocks that can be pledged as collateral for margin funding. Come August 1, these 1,010 stocks can no longer be used to secure margin funding.
The list was earlier 1,730 stocks strong. With this move, the list gets shortened, thereby enabling stricter risk management.
Now a broker will have a smaller pool of stocks to re-pledge with the clearing corporation to give limits to the customer. Brokers will be allowed to give additional securities to customers as margins but it will have to be deployed from his own working capital.
Changes in haircut for mutual fund
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Haircut in respect of units of growth plans of overnight mutual fund schemes shall be 5%
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Haircut in respect of units of mutual fund schemes other than units of overnight mutual fund schemes or liquid mutual fund schemes or government securities mutual fund schemes (by whatever name called which invest in government securities) will be VaR Margin based on 6σ, subject to minimum of 9%.
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The above revised haircut will be applicable from August 1, 2024.
