..... . VALI disclosures . .....: 23/07/26, Margin for Cash Market Trade

Thursday, July 23, 2026

23/07/26, Margin for Cash Market Trade

Market regulator Securities and Exchange Board of India (SEBI) is likely to replace the current flat 20 percent minimum upfront margin requirement for cash market trades with a risk-based framework that could lower margin requirements for investors in highly liquid stocks. The regulator has been discussing the proposal for quite a long time with stakeholders, and now the broader consultation is expected. As per sources, as the next step, the regulator is expected to come up with a consultation paper soon.

Risk-Based Upfront Margin Collection

The proposal under consideration may require brokers to collect the lower of the applicable clearing corporation margin (Value at Risk plus Extreme Loss Margin) or 20 percent of the transaction value from clients before executing trades. The move is aimed at aligning the margin collected from investors with the actual risk assessed by clearing corporations and reduce unnecessary capital blockage.
At present, brokers are mandated by clearing corporations to collect a minimum upfront margin of 20 percent from clients to avoid short collection penalties, even though the minimum margin levied by clearing corporations for many large-cap liquid stocks is around 12.5 percent, comprising 9 percent VaR and 3.5 percent ELM. View is this results in investors blocking more funds than actually required by the underlying market risk.
The regulator's preliminary analysis with data of top 10 brokers suggests that the proposed move could reduce upfront margin requirements in the range of 10-15 percent for clients trading in highly liquid stocks without materially increasing risk. One source said, “The proposal was long under discussion with stakeholders and is nearly final”.

New Liquidity Criteria for Classification of Stocks
Alongside the margin review proposal, SEBI is also expected to tighten the criteria for classifying stocks based on liquidity. A working group comprising of clearing corporations had recommended to increase the trading frequency requirement for the most liquid Group I securities from the current 80 percent to 99 percent of trading days and reduce the impact cost threshold from 1 percent to 0.1 percent.
Similarly, for the Group II securities, the trading frequency criteria was recommended more than 80 percent and 99 percent trading frequency or 0.1 percent impact cost.
For Group III securities, the working group had suggested a trading frequency of less than 80 percent of trading days during the previous 6 months.
The proposed classification will be significant for market participants because it would also determine eligibility for the Margin Trading Facility (MTF).
Another source said, "The Working Group's recommended liquidity criteria for the grouping of securities are considered stringent and could shrink the universe of Group 1 stocks. It was therefore suggested that any revision should be implemented in a phased manner over a period of time, allowing the market sufficient time to adjust."
The current criteria for classification of stocks for margining and MTF were introduced in 2005 and have not been majorly reviewed since then. Hence, the review is long overdue. The number of stocks for Group I stocks has expanded over time due to growth in the size of the market.
Concentration Limits of Stocks
In addition, the working group had also suggested introducing concentration limits on collateral accepted by clearing corporations and clearing members to reduce dependence on a single security. The Working Group had suggested to cap the clearing corporation-wise limit to 20 percent of non-promoter holding for F&O stocks and, for non- F&O stocks, the lower of 20 percent of the non-promoter holding or 3 times the average daily traded quantity in the last six months.
For Clearing Member or clearing broker-wise, the limit prescribed by the panel was 50 percent of the average daily traded quantity in the last 6 months, including the proprietary securities and securities repledge on behalf of the broker, client or custodians.
The Working Group had suggested that the limit would be computed and shared by clearing corporations at the start of the month. The existing collateral exceeding the proposed limits would be allowed a transition period to comply. For a 3-month period, the limit will be informed and not enforced in excess of the new limits.
SEBI is considering a series of measures to deepen liquidity in the cash market as it seeks to boost trading volumes. The proposals under discussion include providing margin relief for buy-side trades through the Early Pay-In (EPI) facility, expanding the list of stocks eligible for short selling, and further strengthening the Stock Lending and Borrowing Mechanism (SLBM).
SEBI did not respond to an email seeking comments on the proposal.

written by Brajesh Kumar

Source:moneycontrol

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Trade Cycles

The four important features of Trade Cycle are (i) Recovery, (ii) Boom, (iii) Recession, and (iv) Depression!

The trades cycle or business cycle are cyclical fluctuations of an economy. A full trade cycle has got four phases: (i) Recovery, (ii) Boom, (iii) Recession, and (iv) depression. The upward phase of a trade cycle or prosperity is divided into two stages—recovery and boom, and the downward phase of a trade cycle is also divided into two stages—recession and depression.

Phases of Trade Cycle:

The phases of trade cycle are explained with a diagram:

(1) Recovery:

In the early period of recovery, entrepreneurs increase the level of investment which in turn increases employment and income. Employment increases purchasing power and this leads to an increase in demand for consumer goods.

As a result, demand for goods will press upon their supply and it shall, thereby, lead to a rise in prices. The demand for consumer’s goods shall encourage the demand for producer’s goods.

The rise in prices shall depend upon the gestation period of investment. The longer the period of investment, the higher shall be the price rise. The rise of prices shall bring about a change in the distribution of income. Rent, wages, interest do not rise in the same proportion as prices.

Consequently, the margin of profit improves. The wholesale prices rise more than retail prices. The prices of raw materials rise more than the prices of semi-finished goods and the prices of semi-finished goods use more than the prices of finished goods.

(2) Boom:

The rate of investment increases still further. Owing to the spread of a wave of optimism in business, the level of production increases and the boom gathers momentum. More investment is possible only through credit creation. During a period of boom, the economy surpasses the level of full employment and enters a stage of over full employment.

(3) Recession:

The orders for raw materials are reduced on the onset of a recession. The rate of investment in producers’ goods industries and housing construction declines. Liquidity preference rises in society and owing to a contraction of money supply, the prices falls. A wave of pessimism spreads in business and those markets which were sometime before sellers markets become buyer’s markets now.

(4) Depression:

The main feature of a depression is a general fall in economic activity. Production, employment and income decline. The prices fall and the main factor responsible for it is, a fall in the purchasing power.

The distribution of national income changes. As the costs are rigid in nature, the margin of profit declines. Machines are not used to their full capacity in factories, because effective demand is much less. The prices of finished goods fall less than the prices of raw materials.

✳Reality Tips to Traders

1)Trading in the stock market is a marathon. 2)Protecting your capital is key. (Learn to protect first) 3)Making 0 on the day is better than losing 50k 4)Losses happen; they are part of this business. 5)It’s not you vs. the market. It’s you VS you. 6)You are your biggest enemy; learn to be mentally disciplined. 7)Don’t follow the majority; follow the correct path. 8)Traders without a stop loss end up not being traders for long. 9)There is always another trade. 10)The big money is made waiting for the right set-ups. 11)Waiting for the right trade is the most powerful strategy. 12)It is better to cut a loss than to wait to be proven right. 13)Position sizing can make or break you. 14)Worry about the downside before you even think about the upside. 15)Don’t listen to headlines

..BANKING TERMINOLOGY

There are various types of Banks: PSU Banks, Private Banks, Co-operative/Regional Banks, Small Finance Banks and Foreign Banks. When you deposit money in a bank, let's say the bank gives you an interest rate of 4%. But when the bank lends out this money, they lend it out at say, 12%. The difference of 8% in the above scenario is effectively the profit of the bank! The loans that do not pay interest for 90 days are known as Non-performing Assets. Banks have to provide for such bad loans. Structure of a Bank Asset for a Bank: The asset portion of a bank's capital includes cash, government securities, and interest-earning loans (e.g., mortgages, letters of credit, and inter-bank loans). Liabilities for a Bank: The bank's main liabilities are its capital (including cash reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments). Banks are required to maintain Liquidity with the Reserve Bank of India: SLR (Statutory Liquidity Ratio): It is the money a bank needs to preserve in the form of cash, gold or government Bonds before providing credit customers. This limitation is added by RBI on banks to make funds available to customers on-demand at your earliest convenience. Banks are required to maintain SLR at 18%. CRR (Cash Reserve Ratio): Banks are required to hold a certain proportion of their deposits in the form of cash. Banks don’t hold these as cash with themselves, but deposit such amounts with RBI / currency chests. CRR rate is at 4.5% currently. Repo Rate: The rate at which the RBI lends short-term money to the banks. The RBI through its Monetary Policy committee changes the repo rate to balance growth and Inflation. Reverse Repo rate: The rate at which banks park their short-term excess liquidity with the RBI. Now let us understand various terminologies for Banks Net Interest Income (NII): This is the spread the bank makes on its lending. It is calculated as Interest Income – Interest Expended Net Interest Margin (NIM): This is the spread the bank makes on its lending. It is the earning which is left after deducting the cost paid to depositors from its yields on Loans. This is denoted in % terms. The formula is Yield on Loans – Cost of funds Capital Adequacy Ratio (CAR): The capital adequacy ratio (CAR) is a measure of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. Essentially, it is the Capital that is available to lend. Tier I Capital – In simple words this capital is freely available with the bank to lend out. Tier II Capital- This is the capital tied up somewhere and is less freely available to lend. In case of an adverse event, the bank can use this capital to lend. Under Basel III norms, a bank’s tier 1+tier 2 capital must be a minimum of 8% of its risk-weighted holdings. The minimum capital adequacy ratio, also including the capital conservation buffer, is 10.5%. Current Account Saving Account (CASA)- There is no interest paid on the Current Account and a small interest rate is paid on a savings account. The combination of both is called CASA which shows the liabilities of the bank on which it pays relatively less interest. Deposits: Bank deposits are a savings product that customers can use to hold an amount of money at a bank for a specified length of time. In return, the financial institution will pay the customer the relevant amount of interest, based on how much they choose to deposit and for how long. Now let us come to NPA. Gross NPA (GNPA): It is the total loans on which no payment has been paid for 90 days or more. GNPA % is usually shown in each Bank’s quarterly results. The percentage is basically the GNPA amount as a % of the total advances. Slippages: Slippages denote the fresh amount of loans that have turned bad in a year. The slippage ratio of a bank is calculated as Fresh accretion of NPAs during the year /Total standard assets at the beginning of the year multiplied by 100. Provisioning Coverage Ratio (PCR): This is the ratio of provisioning to GNPA and indicates the extent of funds a bank has kept aside to cover loan losses. For Instance, a company has GNPAs of Rs 100 and they have set aside 50 Rs, then the PCR is 50%. Net NPA (NNPA): The total figure left after deducting provisions made for bad loans from GNPA. (GNPA – Provisions+upgrades/writeoffs = NNPA) Special Mention Account (SMA) SMA-0 is a category in which stress with respect to the principal and interest has remained overdue for a period of 0 to 30 days. SMA-1 is a category in which stress with respect to the principal and interest has remained overdue for a period of 30-60 days. SMA-2 is a category in which stress with respect to the principal and interest has remained overdue for a period of 60-90 days

..... . VALI disclosures . .....

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Thursday, July 23, 2026

23/07/26, Margin for Cash Market Trade

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