What is 100% peak margins?

The fourth and final phase of the peak margining system kicked off effective from 01-Sep. Peak margin concept was introduced by SEBI in the middle of last year and it was introduced in 4 phases starting with 25% in December 2020. The implications of the peak margin is two-fold. Firstly, it means that entire margin applicable for a cash or F&O position has to be collected upfront. The concept of intraday funding by brokers will not exist any longer. Traders have to bring in full 100% margins upfront. The methodology has also changed. Now the exchange will take snapshots four times during the day and the highest applicable margin will be the peak margins. Clients and brokers that do not adhere to these peak margin will have to pay steep penalties. However, there is a slightly tougher side to this entire legislation. Going ahead, even if you sell shares from demat account, you have to maintain 100% margins for one day. The only exception is if you are willing to do advance pay-in of shares directly to the NSDL or to the CDSL. 

What should traders do?

Let us remember that the trader who always puts margins upfront and trades will not see much of a change. They can continue to trade as before. However, there are two things of interest. Firstly, when shares are purchased for delivery then the shares come into your demat account only on T+2 day. However, it is currently possible to sell the shares on T+1 day using the BTST facility. There is a risk, but it is permitted. Going ahead, BTST will not be possible. The other point is that when shares are sold then the credit for taking fresh positions will now be available on the next trading day. That is in contrast to the current situation wherein, you get the credit of funds for fresh positions immediately. In short, the volumes that intraday traders can do will certainly be restricted. 

Will it impact market volumes?

That is an interesting question. If you look back at the last 20 years of capital markets, every change has been only positive for markets. Most traders had remonstrated that scrapping of Badla, ALBM, introduction of STT would all curb volumes on the exchanges. Today, the volumes in cash market and F&O market are a multiple of what they were about 15 years ago. By that measure, this move should also be positive. But, the real takeaway is that these moves will make the market safer, sounder and more credible. That is worth a lot!