Sebi's New Margin Norms Kick In. Here's What They Mean For Market Players

The new peak margin norms of 75 per cent imposed by the Securities and Exchange Board of India (Sebi) to curb speculative trading have kicked in today i.e. June 1, 2021. Margin trading implies that traders purchase shares by paying a marginal amount of the actual value to the brokerages concerned. Under the new margin rules, 75 per cent of the required margin for all equity and derivatives positions will be collected upfront by brokerages.

Sebi has been implementing new margin trading rules in a phased manner from last year. Between December 2020 and February 2021, traders had to pay at least 25 per cent of the peak margin. The margin was raised to 50 per cent between March and May, and will be 75 per cent from June to August. The margins will be raised to 100 per cent from September 1, according to the market regulator.

Moreover, under the new system, investors will no longer be premitted to use shares lying in their demat accounts to make margin payments unless such shares are pledged with the broker after a proper client authorisation process. The client authorisation will take place through email and a one-time password (OTP). And clients will have to pay a penalty for any shortfall in margins.

The new margin rules may impact impact intraday trading volumes as brokerages would not be able to provide the same leverage as was done earlier. On the other hand, the new margin system is likely to strengthen the risk management system and make the markets more efficient in the long term.