As per SEBI Circular No. SEBI/No/MR02/-DCAP/CIR/2021/10598, dated 20/07/2021, there is change in the margin system with effect from 28 th Feb 2022
The important change is as under:
• For margin purposes for all segments Cash/F&O/CD/MCX there should be a cash margin of 50% and shares 50% minimum.
• For example: The total margin is Rs.1,00,000/- you need to keep Rs.50,000/- in cash and Rs.50,000/- in shares.
• All trades to be carried forward in F&O, MCX & CD margin should be 50% cash and 50% Shares. Accordingly, please arrange funds in your account.
• Further any MTM debit will have to be cleared the very next day to maintain such ratio or will have to reduce positions.
• In cash purchases also the upfront margin will have to maintain in the same ratio as above.
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According to the changed rules, you will not be able to fund the margin requirements by using shares in the portfolio. Instead, 50 % of the margin account has to be funded with cash.
Many people use their portfolio as a margin. Changing the margin rule will hit market volumes in the derivative segment.
The changes in the margin rule suggested by SEBI go against the very definition of derivatives. When derivatives were introduced in India, they were marketed as hedging instruments. If an individual has a portfolio that has been held for a long time, the individual could protect against any fall in the market by either buying a put option or by selling a call option, or selling a futures contract. If there was a fall in the market, the profits from the derivative trades would protect the investor.
Many people make a decent 1-2 % return per month using a strategy called the covered call, where an out of the money (OTM) call of the stocks in the portfolio or the index is sold. This trade will now stop because the investor will have to keep cash in the margin account. If one includes the cost of liquid cash lying in the client's account, then the return from a covered call trade would not be lucrative as earlier.
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