Stockbrokers to seek Sebi clarity on peak margin after EPI relief
Some Indian stockbrokers are planning to approach the Securities and Exchange Board of India (Sebi) for clarity on how peak margin requirements will be calculated for subsequent cash-market trades post early pay-in (EPI), following the regulator's recent decision to waive additional margins on such transactions, according to three people aware of the development.
“Stockbrokers are planning to approach Sebi so that the regulator can specify how peak margin would be calculated under the new rules. However, not all brokers would be part of this,” said the first of the three people cited earlier, all speaking on condition of anonymity.
EPI Mechanism
In a circular dated 22 October, Sebi eased margin requirements for trades made using proceeds from shares sold through the EPI mechanism. EPI allows investors to transfer shares to the clearing corporation before the usual settlement deadline. Once the transfer request is accepted, the value of the shares can be considered towards meeting specified margin requirements.
Peak margin is the highest margin requirement recorded across multiple snapshots of a client’s positions taken during the trading day. It is used to ensure that brokers collect sufficient margins from clients to cover the risk of their open positions. Stock exchanges and clearing corporations oversee the framework, while brokers are responsible for collecting the required margin from clients.
Under the revised rules, clearing corporations will not collect additional margins from trading or clearing members on a client’s subsequent buy or sell positions, up to the value of the accepted EPI. The eligible amount will be the lower of the EPI value and the value of the shares sold.
However, if an investor closes the original sale position, the EPI benefit will be withdrawn. Any resulting margin shortfall can then be blocked from the broker’s own collateral. The new rules will take effect on 22 February 2027, four months after the circular was issued.
The proposed changes have raised questions about whether the margin relief will also be factored into peak margin calculations, which are based on snapshots of clients’ positions taken at random intervals during market hours.
“When a share sale is done through EPI, the EPI is reversed. Then, if the trader makes another trade, according to Sebi’s new circular, the broker does not have to provide additional margin. However, the same has to be recorded in the peak margin calculation too,” said the second person.
Consider a scenario in which an investor sells shares worth ₹1 lakh through EPI and the clearing corporation accepts the transfer. The investor then uses the proceeds to take another position worth ₹1 lakh. Under the new rules, the accepted EPI can provide margin relief for the subsequent position, within the prescribed limits.
The concern among some brokers is that a peak margin snapshot could capture the subsequent position without adequately accounting for the margin waiver under the new framework. This could result in a reported margin requirement that does not reflect the relief available under the circular, potentially creating a compliance discrepancy.
The brokers seeking clarity want Sebi to specify how the EPI-related exemption and its reversal should be reflected in these snapshots, so that margin reporting and compliance requirements remain consistent with the revised rules.
Queries emailed to Sebi did not elicit a response.
The relaxation could particularly benefit smaller stockbrokers that may have limited funds to support clients seeking to buy shares on the same day using proceeds from share sales.
“It could be particularly beneficial for small and medium-sized brokers, as it would ease liquidity constraints, reduce the need for additional capital and help them compete on a more level playing field with larger brokers,” said Raj Shah, executive director at EPP Securities.
“Providing additional margins for subsequent trades can lock up significant funds, increase funding costs and constrain their ability to support further client trading activity,” he added.
Under the existing framework, brokers with greater financial resources are better placed to offer such same-day trading facilities. Smaller brokers may find it difficult to meet the margin requirements on fresh purchases, even when the investor has completed the EPI process for the shares sold.
Investors, too, could use their sale proceeds more efficiently instead of waiting for the next settlement day to access the funds. The relaxation is expected to improve the utilisation of available capital while reducing the funding burden on brokers, subject to the prescribed eligibility conditions and margin requirements.