Trading On margin

Anmi writes to the Ministry of Finance on peak intraday trade margins

New Delhi, May 27 (PTI) The stockbrokers association Anmi has contacted the finance ministry about market regulator Sebi’s proposal to have a peak margin of 100% for intraday transactions.

In a letter, the Association of Members of National Stock Exchanges of India (Anmi) told the ministry that the proposed margin was 300 percent of what should have been the actual margin.

According to the letter dated May 20, the proposed peak margin of 100% on day trades should be reconsidered.

According to Anmi, the peak of the peak margin will lead to a change in the behavior of the market from buying future to buying options and a change in the mindset of people who turn to trading more. ‘options and move away from stock / index futures and stock options.

He also pointed out that higher margins would imply a prolonged postponement of loss-making operations giving a false sense of security. As a result of this change, hedging opportunities decreased due to lower volumes in capital markets and commodity markets were greatly affected.

Concerns have been raised by Anmi that increasing the current margin from 50% to 75% would be effective from June 1.

Between December 2020 and February 2021, traders were expected to maintain at least 25% of the maximum margin. This margin was increased to 50 per cent between March and May and it is proposed to increase it to 75 per cent between June and August, and to 100 per cent from September 1.

The brokers association suggested that the maximum margin requirement should be lowered to within the range of 25% to 33.33% from the current level of 50%.

Sharing his data with the ministry, Anmi pointed out that the rate of overnight margins, levied on intraday transactions, is nearly 3.33 times higher than what is justified based on the risks of the trade.

He argued that the ideal margin based on the associated risks should not exceed 33.33 percent of the Standard Portfolio Analysis of Risks (SPAN) margin.

On May 15, Anmi wrote to Sebi requesting a review of the proposed 100% intraday trading peak margins, as the higher margin would reduce hedging opportunities.

“There is a big gap between what is collected from clients and what must be collected in the face of the risks associated with intra-day transactions,” said the brokerage association.

It had, however, recalled that it was not opposed to the collection of the intraday margin taken from customers or to the deduction of the total margin from the clearing member, whatever the nature of the transaction.

According to the brokerage association, nowhere in the world are clients required to pay peak margins up front.

Anmi is a group of over 900 stockbrokers across the country. RAM PTI SP

Warning :- This story has not been edited by Outlook staff and is auto-generated from news agency feeds. Source: PTI

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