Why doesn't Zerodha allow intraday positions for contracts in ban period?

#1

Why is Zerodha not allowing us to do intraday trading in scrips which are in ban period?
For ban scrips one cannot have new overnight positions but we can still buy and sell positions in intraday right? So many other different brokerages provide this facility.

Can we go long and or short on a banned security (F&O derivative)?
Does broker (Pi or Kite) perform check to prevent user going long or short on banned security (F&O)?
Trading with MIS Orders in F&O ban stocks
HUGE MARGIN INCREASE by Zerodha in 1 DAY
#2

Yes, exchanges look at if overall position is added at end of day at broker level. But if you look at exchanges circular on ban period stocks, they are very clear that nothing new should be allowed even for intraday. If there are other brokers doing it, they are not being compliant to exchange regulations.

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#3

Hi Nitin,

Please see the details below:

https://www.nseindia.com/products/content/derivatives/equities/penalties.htm

Pasting an extract from the last paragraph.

Market wide Position Limit violation
At the end of each day during which the ban on fresh positions is in force for any security, when any member or client has increased his existing positions or has created a new position in that security the client/trading members will be subject to a penalty 1% of the value of increased position subject to a minimum of Rs.5000 and maximum of Rs.100000. The positions, for this purpose, will be valued at the underlying close price.

This clearly says position size should be same at EOD. No where its mentioned we can’t add positions intraday and close it intraday.

As Suresh mentioned many well established brokers are providing that facility of doing intraday trade in ban scrips.

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#4

Kris, will speak to our compliance team on this. Btw what happens if say there is no liquidity in the contract, we can’t force a client out of a position then. This is a very common occurrence in case of stock options.

#5

Nitin,
Every broker has facility to close positions taken in intraday. If customer doesn’t close their position automatically then the system will close it. So the same step should be used in the scenario mentioned above. Its very clear that EOD position should be same so one has to close all positions intraday only
There are so many such probabilities in market but solutions are also already in place so we just have to look into it.

#6

What if either buyers or sellers are not available for a stock option once the position is entered, which is a common scenario.

#7

Most stock options are illiquid. If you take it for intraday and we are not able to square off, it is an issue.

#8

Nitin,
Agree but still as the discussion on topic started “Many brokerages are giving this facility and NSE also allows it”.
So you need to figure out method in enabling this option which is in-line with the regulations. If still someone fails to close they will be penalised which is something common in market.

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#9

Its the users risk. what if someone doesn’t close ITM positions during expiry? They pay penalty as STT right? even after knowing that are we sure no one is paying STT? Many still pay so it varies from user to user. Because of 1-2 scenarios you can’t disable a functionality which is in-line with rules stated by NSe.

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#10

It’s not users risk alone, broker has to take huge risk in terms of operational, market, and credit.

For ex: If one client with 500 rs in his account bought far out of the money option and by EOD we have to sell this, what if buyers were not available, it will be open and increase the market wide position limit.
From NSE "At the end of each day during which the ban on fresh positions is in force for any security, when any member or client has increased his existing positions or has created a new position in that security the client/trading members will be subject to a penalty 1% of the value of increased position subject to a minimum of Rs.5000 and maximum of Rs.100000."
So initially broker has to pay 5000 and the same has to be recovered from client, we have to carry option for next day wishing the option to expire in the money so that some debit can be recovered, so broker is subjected to market risk.
If the option has expired worthless then the total penalty has to be recovered from client so again subjected to credit risk.
I just mentioned for 1 lot from one client, what if 10 clients buy 10 lots in each ban scrip, the risk will be ballooned exponentially for broker. Few traditional broker might diversify it with charging very high brokerage, even then
I personally believe odds are never in favor of broker in this scenario.

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#11

Siva,
Market there is huge risk for everyone involved and one needs to manage it.
You could provide the option of trading in ban scrips but don’t give any margin. That way people with full capital only will be able to take position. Even for option buying demand full margin of futures to open new position. Also you could enable facility of trading only in futures in ban scrips rather than in options. These are just suggestions. You only allow existing positions to square off. Where as in many brokerages they allow squaring off the existing positions but at the same time allow them to rollover the positions into next series. The only condition is EOD position should be same.

The rule pasted by you above is an extract from NSE website which is standard. My question is there is no mention of you can’t have positions intraday. If the risk is there for Zerodha then there is risk for other brokerages also. If they are able to manage it, I am sure you guys are more than able to manage it. We are not asking for something against the rule.

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#12

Kris,
I am just giving my individual opinion here but not of Zerodha. What do you mean by “demand full margin for option buying”, obviously one has to have full premium capital to initiate any option buying and can’t force anyone more than that.
Other traditional brokerage houses manage/ diversify risk by charging more brokerage. The risk they take is offset-ted by the reward they make, having said that I am not directing this entirely towards brokerage because if I am right even ICICI securities won’t provide the facility to take new intraday position for scrips under ban period.
Even with Zerodha if one is having position on any ban scrip they can close existing and roll it over for next expiry.
As you mentioned to allow trading at-least in futures I am just trying to provide a rational but yet a plausible alternative, in that case why one can’t trade in equity itself, one can buy and short for intraday, can use BO product type to get much higher leverage, even eq is more liquid with tighter spreads compared to their futures. To conclude this is just my discrete take on this.

#13

Siva,
My point is when other brokerages are providing this facility then their users are getting undue advantage. Which is far more than doing the same in CM. Again my point is when NSE is not restricting this activity why is Zerodha restricting? If this was against rules then NSE would have already taken actions. I rest my request here and see what Zerodha can do. I don’t want to get into this endless debate which others may see it in wrong way (my point of view it was very healthy and thank you for your time).

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#14

Siva,
And wrt your suggestion of doing intraday in cash market you must know its very difficult to get your order filled. I have faced scenarios where only 2% of my order got filled and scrip moved. If trading in CM and FNO was same we wouldn’t have asked you this question.

#15

Thanks Kris for making a point in the forum,
Can you let me know which broker provides the facility of trading intra day in Ban Scrips ?

#16

Motilal, Ashika, Micrsec, Naronila and my friends use some other brokers and they provide this facility too.

#17

Hi Nitin,

Is it allowed now? See today (12/12/2017) FORTIS was in ban but in intraday it would have given huge profit if one had sold it.

Thanks,
Sachin

#18

It is not allowed, said that it could have resulted in huge loss if one has bought it, so this is subjective and intraday trading is allowed on all other counters which are not under Ban and they also provide good trading opportunities if carefully monitored.

#19

@nithin This would hamper liquidity in ban stocks further, how can one even reduce positions with high impact cost?

We would appreciate it if you can clarify with exchange exactly if they really don’t want to allow intraday OI increment. If mass build-up is the worry, then I think you can add additional risk controls for this rather than blocking MIS entirely.

#20

Risks of allowing intraday trading are too high and can check the thread from start ,also there will be 5 to 6 counters which will be in ban out of close to 200 stocks, so, personally I opine it is not advisable for retailers to do intraday trading in these ban stocks. Anyhow end of the day it is users choice but as our policy we don’t allow it.