The Securities and Exchange Board of India (SEBI) introduced the concept of delivery margin under their peak margin norms. Peak margin refers to the minimum margin brokers must collect from their clients before placing any intraday or delivery order. In March 2021, SEBI had raised the margin that clients should have from 25% to 50%. The regulatory board is implementing this increment in the margin in a phased manner, with the latest phase raising the margin to 75%. Essentially, the new system allows brokers to offer investors maximum leverage of only 20%.
As per SEBI and the new peak margin policy, 80% of the total sale will be available for trading on the same trading day you sell your positions. The remaining 20% will be blocked as a delivery margin and credited in your Demat Account on the next trading day after deducting all applicable charges. Depending on your broker, the term for delivery margin may differ.
Initially, when you sold your share, you would receive 100% credit in your trading account. However, after you sell your holdings from your Demat Account or sell your Buy Today Sell Tomorrow (BTST) stocks, only 80% is credited out of the total sale. It will be available for trade on the same day you sell the stocks.
The brokers are required to block 20% of the total sale value as margin until the broker can debit the Demat Account shares and make them available to the clearing corporations (CC) by the process of Early Pay In (EPI). EPI is when your broker settles your holdings with the Exchange earlier than the actual due date of that settlement, i.e., on the trading day or T-day. The EPI facility exempts the broker from any margins, which would have been applicable if the settlement was on T + 1 day. As per SEBI's new regulation, this helps cover the margin requirement and avoid penalties due to margin shortfall.
For example:
- You sell stocks worth Rs 10,000 on a Monday. 80% of Rs 10, 000, i.e., Rs 8,000, credited to your Demat Account and will be available for trade on Monday itself. The remaining 20% is blocked, which is your delivery margin.
- On Monday, after the market closes, the broker will debit the shares from your account and make them available to SEBI-approved CCs to settle the transaction.
- On Tuesday, the remaining 20%, i.e., Rs 2,000, will be credited to your Demat Account and will be available for trade.
The rationale behind enforcing the new delivery margin norms seems to be one of risk management. The limits upon the margins that can be extended ensure that investors do not take risks and engage in speculative activities. Further, the norms also protect brokers and their funds by placing penalties on those traders who are unable to clear delivery charges. While traders appear anxious over the new norms and change volumes and trading frequencies, experts hope that such changes will settle and the new system will be a prudent step.
It must also be noted that SEBI has recently further simplified norms for processing investor service requests. These requests range from change or updation of PAN, nominee, signature, bank details, etc., to change in status, consolidation of securities certificate, or even matters of duplicate certificates.
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