Will intraday leverages offered on derivatives also change post the new SEBI circular on SPAN+Exposure collection?


#1

I get it that overnight basis we need to have entire SPAN + Exposure, otherwise there will be a margin penalty charged. But does this affect intraday leverages that brokers offer?

For example to trade Nifty using NRML requires Rs 65000, but if I use product type as MIS for intraday I need only 25k (around 40%). Will this MIS margin also go up? Similarly what about Bracket orders and cover orders where the intraday leverages are higher?


#3

Intraday margins may not really go up to the extent of NRML/overnight margins, but intraday margins are bound to go up with all brokers. Let me explain why.

When a broker allows you to trade a futures contract that requires Rs 65k with only Rs 25k for intraday, he is actually putting up the rest of the margin on your behalf. By the end of the day, these positions are squared off, so this margin being put on your behalf is only for intraday.

So earlier, Rs 65k = Rs 40k as SPAN + Rs 25k as Exposure. The broker would put up Rs 15k on your behalf and allow you to take this position. Rs 15k was to make up the SPAN, which was the minimum required amount. Now, he will have to put up Rs 40k (Rs 15k + Rs 25k) which is the SPAN+Exposure, the minimum required amount. The problem is bigger in case of BO/CO where the leverages are more.

Why do brokers put up money on your behalf to allow you to trade with leverage for intraday?

It is an industry practice and also traditionally brokers (by charging a % brokerage) make more money if position sizes are bigger.

To allow intraday leverage on derivatives, a broker will now have to put up at least Rs 40k of his own money for every 1 lot of Nifty future open position of his client for intraday. NBFC’s typically lend money to the broker for such purposes at a cost. But considering the huge jump in the money that has to be put up from now, I am guessing all brokerages will bring down intraday leverages for F&O trading in the next few weeks - especially since brokerage rates can’t really be increased. :slight_smile:

Typically the first few days of the new series is when volumes are lower, so brokers may not feel the pinch as much. But as the month progresses, everyone will be forced to react.

At Zerodha?

MIS trading - we currently ask clients to bring in only 40% of SPAN+Exposure for intraday trades. We are increasing this number from 40 to 50%.

BO/CO - Based on stoploss the margin requirements would change. The minimum margin earlier for taking index derivative position was 1% of contract value, which is being increased to 1.25%. For stock derivatives, it is being increased from the minimum required of 2% to 2.5%.

The above changes will only be on equity and equity index derivatives. The intraday margin requirement for commodities (commodities never had exposure margin requirement) and currency will remain the same.

We will take a call again on this in the next few days. Btw considering this step from SEBI, it might not be too long before SEBI mandates brokers to ensure collecting of complete margins from clients even for intraday positions. Which may not be too bad, as lower leverages are good for everyone.


More margin money to trade in Nifty Future BO Order
#5

Hopefully this doesn’t happen. :slight_smile:


#6

Do brokers really have to put the margin for intraday trades?

I am under the impression that brokers have to meet the margin requirements for all overnight positions by EOD, the intraday square-offs are thus not counted. I thought this is the reason some brokers can give very high leverage (20 times for NIFTY futures, like that) for intraday trades.

If what you said is true, then discount brokerage with a flat brokerage does not make sense. The math works wrong. More trades means more cost to you, but the gain is flat. Thats wrong. Growing your business increases cost linearly but the brokerage rate is flat ???


#7

For equity trades, yeah exchanges only block a margin during intraday. Full money or stock (in case of short trades) taken only the next day.

For derivatives, margins are blocked instantly. Until now it used to be SPAN, now it is SPAN + exposure. With this, slowly leverages will go away from the system. I think the real pain of this move will be felt last week of the month when client positions are usually the most.


#8

Thank you.