F&O margin norms: SEBI’s decision to defer the implementation of the 50 per cent cash margin rule for future and options traders till February 28, 2022, will help market participants to adjust to the new process of segregation and monitoring, experts said on Wednesday. The earlier deadline was December 1, 2021.

Earlier this year in March, SEBI hiked the upfront margin requirement to 50 per cent from 25 per cent, which brokers say has impacted volumes in commodity derivatives more than those in equity derivatives, which continue to grow.

The move was welcomed by market participants, as they were seeking for extension of the deadline due to operational issues. For trading in the futures and options (F&O) segment, the earlier F&O margin rules allowed investors to cover their margins entirely with their securities.

However, from February 28, 2022, clearing members will be required to maintain at least 50 per cent of the total collateral in the form of cash or cash equivalents. Clearing members (CM) guarantee trade settlement to stock exchanges on behalf of clients.

For the purpose of monitoring at least 50 per cent, cash-equivalent collateral at the level of clearing member, the excess cash-equivalent collateral of a client will not be considered for other clients or for proprietary accounts of trading or clearing member.

The decision to defer the F&O margin norms was taken to protect the interests of investors in the market, limit their risk and prevent the brokers from providing excessive leverage to traders.

Paytm Money CEO Varun Sridhar said this is a good move by SEBI as this will help the market participants, including MIIs, to test and stabilise the system developed by them for the new process of segregation and monitoring. 

Welcoming SEBI’s decision, Vijay Singhania, Chairman, TradeSmart, said that the major issue in the implementation of the rule is the lack of practicality.

“Besides funds, the segregation of securities given by the clients among different segments is a bigger problem. Segregation of securities by way of pledge by the client and re-pledge by a broker to clearing corporation for each segment will become a huge exercise,” Singhania said.

Ashish Chaturmohta, Director Research, Sanctum Wealth, said that SEBI has made a nice move by shifting the dates to a few months later, as people had made investments across Initial Public Offerings, mutual funds, equity and derivatives, and so on.

“This rule would have hampered the trading activities as several positions across variously asset classes would witness a sell-off. Hence, this decision would give time to people to manage their trading activities,” he added.