New SEBI Regulations, Upfront Margins and Penalties Explained4 min read

September 1, 2020 3 min read
SEBI margin norms

New SEBI Regulations, Upfront Margins and Penalties Explained4 min read

Reading Time: 3 minutes

Impact of New Margins Requirements

(Effective 1st Sep, 2020)

Key Highlights for Investors:

Everything remains the same when you sell shares post 2 days of buying stocks

When you want to sell stocks the next day –

  • Stocks bought today can be sold the next day (same as before)
  • If you sell any of these stocks the next day (T+1), funds available from selling these stocks can be invested again
  • Funds available from selling shares next day (T+1) can’t be used for investing on the second day (T+2)

Key Highlights For Traders:

Intraday profits can’t be used for trading on the same day and next day. They can use only the second day from the day of trading i.e T+2.

Detailed understanding of the regulation

SEBI, the regulator of Indian Stock Markets, evolves with changing times and brings around changes to policies.

Recently, SEBI changed its rules about the upfront margin that investors need to maintain while executing intraday and delivery trades. Earlier, this was only applicable to the F&O segment, but given the suspicious activities in the intraday and delivery segment SEBI has imposed these new regulations wherein from Sep 1, brokers (Paytm Money) will have to disclose the margins collected from their clients, otherwise, the brokers will be penalised.

Therefore, you may see some changes while you trade on the platform from now on. Let us see what kind of changes you will witness.

In November 2019, the Securities and Exchange Board of India (SEBI) introduced a framework of margin collection in the cash segment where one needs to pay for the securities purchased within two days to the stockbroker.

From now on, all of you will have to maintain a margin before executing any kind of trade i.e buy or sell.

The shares also need to be delivered on the same day, else it will be subject to penalty from now on. Currently, the stock exchanges have a T +2 settlement cycle (you can read more about it in this blog), where the investor can deliver securities till T+2 days, but now SEBI has advised that the early PayIn be done on the same day.

Let us understand what are PayIns and Payouts

Pay In is when you sell the stocks and the broker transfers shares to exchanges. Payout is when exchanges pay you the shares that you have bought on T day. There is also an Early PayIn i.e. when you sell the stock and the exchange receives it on the same day.

Let’s look at the regulatory changes with an example
For instance, if you buy shares of Reliance Industries worth Rs. 1 lakh on Monday (delivery based) with a trading balance of Rs. 1 lakh and you want to sell shares worth Rs. 50,000 on Tuesday i.e at T+1 to buy Tata Motors then you can do that.

Here, the transaction that you will do on T+1 or Tuesday will become your T-day. Therefore, the T+2 of your original transaction will be T+1 of your order where you sell Reliance Industries and buy Tata Motors. In order to balance out these two transactions, you will only be able to further sell balance Reliance Industries and Tata Motors if any on Wednesday. Whereas, on Thursday, the net of proceeds post selling and buying of Reliance Industries will be available for trading.

Monday – Buy RIL worth Rs. 1 lakh (100 shares) using 1 lakh transferred on Monday morning

Tuesday – Can sell RIL worth Rs. 101,000 (100 shares) at a profit of Rs 1000 and buy Tata Motors worth Rs 50,000 (T-day of this transaction)

Wednesday – Cannot buy further unless the funds are transferred however you can sell Tata Motors bought on the previous day. Holdings for RIL on this day will be zero

Thursday – Can then trade with the proceedings (plus profits earned) out of RIL

You will also not be able to use booked profit on Intraday positions for the same until its realisation i.e. T+2.

It is advisable to keep some extra balance in your account to avoid penalties due to these structural changes. Also, if you have any issues don’t panic just contact our customer care team, they will help you with the process.

FAQs –

After these new regulations can I buy or sell the securities on T+1?

Yes, you can sell your stock on T+1. But the proceeds from sell trade cannot be used for further transactions on T+2. For eg: Today you have a fund balance of Rs 20,000 and you bought stocks worth Rs 10,000. On the next day i.e T+1 you can sell those stocks for Rs 11,000 at a profit of Rs 1,000. Your ledger balance will have close to Rs 21,000 (net of brokerages). You will be allowed to buy stocks worth Rs. 11,000, but this balance cannot be used at T+2.

Do I need to have upfront margins for T+1 transactions?

Yes, as per new regulations from now on you will need to maintain a margin for all the transactions.

Can I use the profits from intraday trading on T-day or T+1 day?

No profits from intraday trading will be available for trading only on T+2.

What should I do to avoid these penalties?

In order to avoid these trading penalties, it is advised that you maintain a reasonable balance in your account.