Sebi’s new framework on peak margin requirements appears to have affected the volumes in cash and future segments, with the options market gaining at the expense of the former. The average daily volumes of cash and futures segments on both the exchange have declined 19 per cent and 13 per cent in March, respectively, compared with February: By contrast, volumes in the option segment in March increased 16 per cent and 39 per cent over January.
The new framework requires customers to have 50 per cent of the peak margin available with the broker effective from March 1.
“Yes, we have observed that many of our small-ticket clients who are into day trading have shifted from the cash and futures segments to options trading as the latter require very low margins,” said Nithin Kamath, CEO, Zerodha. “For instance, to buy one lot of Nifty futures, you need Rs 1.6 lakh while to buy one Nifty option, you need just Rs 10,000-15,000.”
Average cash market volumes have declined to Rs 72,196 crore a day in March compared with daily average volume of Rs 88,621 crore in February or Rs 77,675 crore in January. The average daily volumes of the futures segment on both the exchanges were Rs 1.26 lakh crore in March compared with Rs 1.45 lakh crore in February. Option volumes in March are Rs 48.31 lakh crore, compared with Rs 41.56 lakh crore in February or Rs 34.70 lakh crore in January.
Brokers are now worried about the declining high margin cash and future market business, which gives them better brokerage than options trading.
“In options, investors with hedged positions enjoy the benefit of very low margins but in cash and future trading, clients will have to keep 50 per cent margins in place,” said Sandeep Bhardwaj, CEO, IIFL Securities. “Volumes per client will definitely go down in coming months; however we expect more and more new investors will enter the stock market to offset the declining volumes.”
In the past one year, the market regulator has introduced several new norms regarding margin and pledge of shares. One of them was the concept of peak margin reporting in which stockbrokers would not only calculate margin based on the end of the day position but the intraday peak position.
The new system has been adopted over four phases. In the first phase from December 1, the investors were asked to keep 25 per cent of the peak margin available with the broker while from March 1, the margin requirement will be increased to 50 per cent.
Similarly, from June 1, the margin requirement will be 75 per cent of the peak margin and from September 1, it is 100 per cent.
This means that brokers that were giving very high leverages for intraday trading in cash and F&O will have to restrict these leverages to a maximum of 2 times until May, 1.33 times until August, and 1 time from September.