Upcoming reforms by SEBI

@nithin Just read an article on SEBI considering the following -

  1. Reducing settlement days to T+1.

  2. Final call on zero amount of a client to be taken every 90 days

  3. Capital adequacy norms for a broker

What does this mean to the industry and business? What changes at Zerodha?

Reducing settlement days to T+1

I had written this sometime back.

We have been supporting this idea of T+1 settlement, makes it operationally a lot more easier for online brokers like us.

Final call on zero amount of a client to be taken every 90 days

We are still not sure about the details, but it looks like change in logic in terms of how quarterly settlement is done. Shouldn’t make a big difference, but yeah, need to get details if and when this announcement is made.


Capital adequacy norms for a broker

Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.

With the new upfront margin rules and restrictions on intraday leverages in place, a broker can’t fund the customer intraday. The only funding from the broker and so the liability could be in terms of the MTF (margin funding) book.

That said, futures, short options, & intraday stock trades have almost unlimited liability. For example, if a client at a broker has used Rs 1 crore to buy Rs 5 crores of stocks for intraday and if the stock falls 50% without giving the broker an opportunity to square off the position, the loss on the position is Rs 2.5 crores. So the customer with Rs 1 crore just lost Rs 2.5 crores, this Rs 1.5 crores will have to be provided by the broker until the customer pays back. So there is a risk the broker takes on when allowing customers to take such trades. Maybe SEBI will come up with a rule saying that brokers should have at least X amount of networth to take on positions with unlimited liability of size Y.

Again, I am not really sure if this is what SEBI is planning. But this will not really make a big difference for us at Zerodha, we are very well capitalized as a business and with zero debt.


For the love of God, can we please not have zero debit balance at the end of every quarter? Cause what that effectively means is that the broker will square off my positions as the settlement day approaches which could not only hinder my trading but could also potentially result in losses. That’s something that no client wants and as a matter of fact hampers the trading experience of the client even if he is paying all the required margins. I hope the brokers’ association does something about it cause it’s going to indirectly affect their business as well.

I remember reading about Nithin in an interview that he wanted to build a business that helps its clients and that’s something he considers to be special.

So @nithin could you please do something to prevent this rule from coming. I am saying this on behalf of all traders.

I don’t think there will be any rule that will force customers to square-off positions. I think it is just media reporting based on rumours.

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I can see that little smirk all the way from Kerala :stuck_out_tongue: