I have an Open position in NIFTY for which the MTM loss is ₹ 40,000 and I don’t have sufficient free cash in my account. I have 20 shares of TCS valued at ₹ 2000 in my holdings. Can I sell the TCS shares to cover my MTM loss?
Yes, you can sell your TCS shares to cover for your MTM loss & your NIFTY position will be carried forward. However, you will be charged margin penalty.
This is because the sale proceeds of the TCS shares will be realised on T+2 day. This amount isn’t entirely considered when brokers report client margins to the exchange.
Refer to this article on the support portal for a detailed explanation with an example.
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Please clarify this in the context of the below mentioned links.
Do you mean that one will face a margin penalty from the exchange but no interest charges from Zerodha?
Earlier the same situation wouldn’t have incurred exchange penalties.
After the release of the above-mentioned circular from SEBI & follow up circulars from NSE, the way we need to report client margins to the exchange has also changed.
Unrealised sale proceeds, or F&O profits from the same day, will not be reported entirely. Please refer to these Support articles -
Feel free to ask any follow up questions.
Thanks for the links. Please help me out with these follow-up questions.
Is the margin reporting to the exchange SAME as what I receive everyday on email (Margin Statement)?
Have the above changes (like equity sales - haircut to be added to available margin) been implemented in the margin statement pdf?
Zerodha is double counting fno negative mtm and cash market debit in the margin statement. (reference to open Support ticket #20180721315580) Can you please check this?
Please consider this example and let me know whether my understanding is correct or not.
I have open f&o position which needs a margin of 1Lac. I have pledged liquidbees whose post-haircut value comes to 1Lacs. Now, I have a -10K MTM on day T. On day T itself I sell 12k worth of other liquidbees (not pledged ones). So now, my margin requirement for open position is still 1 lac where as my margin available is 1L (post-haircut collateral) + 12k*0.9 (sold liquidbees) - 10k (today’s MTM). So, no margin penalty right? No interest charges either. Right?
Sorry for the late reply!
- The margin statement shows margin status is i.e what free margins are available in your account in order to take new positions without incurring penalty or charges.
The formula of margin reported is -
T Day Closing balance + [Tday EQ,F&O Debits + T-1day EQ debits] - [Tday EQ,F&O credits + T-1day EQ credits] + Value of shares sold considering VAR + BTST sale considering VAR + Value of holdings considering VAR + Collateral margin
T day equity & FnO credits, also T-1 Day equity credits won’t show up in the margin statement.
With regards to your ticket, it has been escalated. We will make the necessary changes, the issue should be sorted in the coming week.
That’s right, in this scenario there would be no penalty or interest charges.
Thanks for your reply.
In the above quoted text, when you say “Value of holdings considering VAR”, are you talking about pledged holdings or the ones that are not?
Value of your holdings that aren’t pledged.
Do we get the same margin allowance for pledged holdings as we do for unpledged ones? Can we see this margin due to holdings that are not pledged in kite/nest variables?
If yes, then it seems there is no need to pledge holdings. In fact, this way is better for some traders as they can sell the holdings whenever they want and dont have to wait for one more day to unpledge it first.
What are your thoughts on the above?
- When margin is being reported yes. The value of unpledged holdings is also considered. We do this as it can be used to reduce penalties incurred by clients. However, unlike collateral margins, this amount can’t be used to open new positions.
No, as it is the value of holdings and not technically margins. To see it on Kite/Nest it has to be pledged.
- Although the value of holdings is considered while reporting margins, if you don’t have the necessary margins we will not allow opening of new positions (as per our risk policies), You will have to pledge holdings and use collateral margins.
Also. In many cases, the VAR (value at risk) of a stock will be 100%, meaning they aren’t eligible for collateral & since their value will be NIL, it won’t be reported as well.
It would be convenient for clients, however for brokers, from the risk perspective, it doesn’t make sense.
It would be very helpful if you can explain this in more detail. How is this riskier for the broker? Thanks.
When you pledge shares, you can’t sell them off without placing an unpledge request first. So the risk of default is reduced significantly.
If its in the client’s demat they can always sell it or transfer it out via off market transfers.
Okay. Makes sense to me now.
On this, can you guys please consider this and evaluate if the following is possible or not:
How about all pledged shares are available in T1 quantity and present in broker pool. This way, the client cannot take it away off-market and can sell it when in need without unpledging and wasting 1 (or many times 2 days if request placed after 10:30am i guess).
From the client’s perspective, it will be very helpful if I could get margin on all my holdings this way, whether explicitly pledged or not.