There is a change in F&O Margin Policy again? Can somebody explain how this will affect us?

[firoz]

Hi,

Could the zerodha team shed some light on these circulars

1. https://www.nseindia.com/content/circulars/CMPT39766.pdf
2. https://www.nseindia.com/content/circulars/CMPT39767.pdf

Both of them seem to be contradictory in nature. I also got a message on one group saying that we can expect an increase in F&O margins of upto 40% in some cases. Is this true or are these baseless rumors?

Also, is there any expectation of increase in the margins in the near future as per you guys?

[anp]

@MohammedFaisal

Here’s an approximate calculation of how the revision in margins will affect all future contracts(Does not include the additional exposure charged due to increase in OI(beyond 70% of MWPL)).

Does this MWPL based increase still happen? I think there was some circular which disabled it some time in oct-nov 2018.

Please correct me if I am wrong.

Thanks.

[MohammedFaisal]

@firoz

Both of them seem to be contradictory in nature

You’ve misread both the circulars, the exchange had introduced Additional Surveillance Measure in Sep '18. Explained in this thread.

Margin requirement for trading F&O is set to go up in 4 phases starting - 14th Sep, 2018

No there isn’t. But if you are having long options in stock option contracts which are compulsory physically settled on expiry - you would need margin from 4 days before expiry. This had to happen to ensure long option holders have enough money to give/take delivery of the entire contract. From the email we have sent to all our clients. The margin requirement for Long/Buy option positions in compulsory physical delivery contracts From September expiry onwards, the exchange has mandated tha…

They’ve decide to revoke ASM and increase the MPOR to 2 days instead of 1 which could cause the margin increase to go upto 40%. This is explained in this thread.

[MohammedFaisal]

@anp

Does this MWPL based increase still happen? I think there was some circular which disabled it some time in oct-nov 2018.

Yep, this was discontinued from Sep 14(Circular). But exchange continues to levy additional exposure margins for stocks which have a history of volatility and tend to have higher utilisation of MWPL. This is charged based on the last 6 months high-low movement within 10 days. The highest price change is charged as additional exposure(Circular).
You can find the Exposure limits file on the exchange daily reports

[p699]

Change in F&O margins

This is definitely ridiculous !
SEBI is on wrong path in this matter !
This will make a comeback probably, SEBI cant even detect it easily because it will be internet based now !

The inside story of Sebi crackdown on dabba trading

[deepak2508]

Hi Zerodha
As per the XL sheet that you shared for increase of premiums from 21 jan onwards it seems that nifty lot will cost Rs 10000 more ( you did calculations with nifty at 10921 level). Margin will go up fromo 82k to 92.4 k approx

can you also share what will be the margin increase for OTM nifty strike? Say for Nifty strike of 10400 what would be increase in margin requirment for that level?

rgds
Deepak

[Arun_Kumar_Sriraman]

@NithinKamath @nithin Would this change have any impact on Cover Order & Bracket Order?

[siva-reddy]

@Arun_Kumar_Sriraman

Would this change have any impact on Cover Order & Bracket Order?

No changes on BO/CO for now. Also can track this to see for any changes.

[Aakash_Sawant]

have the changes been updated in the zerodha margin calculator… @siva-reddy

[siva-reddy]

@Aakash_Sawant

have the changes been updated in the zerodha margin calculator…

Will be updated for tomorrow with new changes.

[Nudrath_Khan]

This will certainly affect the trading volume…Security firms may have to increase the brokerage to compensate the loss…Less tax collection to the govt…

[newbietrader]

So there is no increase in margin for BO and CO in futures segment?

[siva-reddy]

@newbietrader

So there is no increase in margin for BO and CO in futures segment?

Yes.

[Rakesh1]

I understand this will reduce volume and thereby volatility will also reduce. Correct?

[newbietrader]

AFAIK, less volume -> less liquidity -> more volatility

[sandepca]

This is quite disappointing. What I am unable to understand is how does it help SEBI by killing the market in order to save the market. We fear what we do not understand, and typical bureaucrats do not understand anything.

Also, those folks who think that people would start selling at higher rates to compensate for higher margins, it would not happen. I am seeing the evidence first hand in past 2 months where getting reasonable amount of premium is becoming increasingly difficult despite higher volatility.

This is a lose-lose all around.

[MohammedFaisal]

@Aakash_Sawant

have the changes been updated in the zerodha margin calculator

Yes, margin calculator is updated with the revised margins

[deepak2508]

zerodha

are you sure abt the margin requirement of Nifty far OTM Strike…margin for 10000 strike put has gone up from 50k to 76k ,ie more than 50% increase in margin, though ATM put strike of nifty has increased from 79k to 86k

[nap]

Why is Zerodha sending message asking for additional margin today even though this change applies from 21-Jan? Shouldn’t Zerodha let traders square off the positions today themselves by sending warnings?

[MohammedFaisal]

@MohammedFaisal

Short Option Minimum(SOM) is a minimum margin for all strikes of option short contracts that fall beyond the Price Scan Range. For instance, Nifty has a PSR of 762 points(covering a 7% movement). This effectively means that holding a 11700 CE or 10000 PE is risk-free, however, SOM of 3% is charged for such contracts. This will now go up to 5% of the contract value. There is no increase in SOM for stock options.

Like I’ve explained deep OTM option short positions will be impacted most as margins have gone up additionally by 3.24%(2% SPAN +1.24% of Exposure) of the contract value when compared to futures and ATM short options