The margin multiplier was changed to 2x or 1.5x on Budget day. On normal days we can trade for 11 to 14 times the cash available in our account on some stocks (say SBIN) but on volatile days like the budget day only 1.5 times to 2.0 times. Did the RMS department think that volatility would be (11+14)/(1.5+2.0) = 7+ times higher than a normal trading day? Isn’t this margin policy too much conservative and inconvenient to traders? Taking a re-look at it as biggest VIX spikes suggest that doubling/tripling margin requirement would have been sufficient instead of 7 times.
It is called "Hindsight Bias" - they knew it all along effect after an event has occurred, to see the event as having been predictable. If you look at volatility (or VIX) going back long enough, you will find an event day when markets have moved so much during intraday that any amount of margin collected wouldn't have been enough to cover the risk. For example, the markets moving over 40% in two days post the 2009 election results. As a brokerage our primary job is to also ensure that one or a group of clients don't create a systemic risk (risk of collapse of an entire system). Hence we are extremely conservative when it comes to providing leverage when we expect volatility.
2 Likes