Turnover data available with stock exchanges suggests a mixed impact of Sebi's new margin rule so far, with daily cash market turnover falling up to 29 per cent since September 1 over August, but daily derivatives turnover rising 15 per cent during the same period. Broking industry said the true nature over the impact of the new rules would be visible only after September 15 when waive-off on penalties for any shortfall in margin collection will be lifted.
The average daily turnover in the cash segment for Asia's oldest bourse BSE has fallen to Rs 3,137.23 crore compared with Rs 4,432.38 crore in the previous month. But in case of derivative segment, the average daily turnover has in fact increased 15 per cent to Rs 1.01 lakh crore compared to Rs 88,005.57 crore in August.
A similar trend has been seen on NSE where daily cash turnover has fallen month-on-month 11 per cent to Rs 54,116.39 crore, but F&O turnover has risen 12.57 per cent to Rs 21.13 lakh crore. It was Rs 18.77 lakh crore in August and Rs 21 lakh crore in July.
"Volumes are likely to shrink significantly once the peak margin kicks in," says Anup Khandelwal, President at ANMI. Lav Chaturvedi Executive Director and Chief Executive Officer, Reliance Securities says 5-10 per cent dip in turnover initially cannot be ruled out, but eventually things will stabilise.
Moving to the new system
After initial hue and cry, most market participants seem to have adjusted with the new rules in the first 10 sessions. Only few of them are yet to ready their risk management system (RMS) yet.
"The process of pledge/un-pledge of shares has become continuous and is yet to settle down. The back office is still evolving and reports are being built by the vendors. The RMS is going through structural changes as limits are released on the basis of pledged stocks. These are in different stages of implementation in brokers' offices. Most of the broking houses are yet to automate the RMS system. The shares pledged to clearing corporations are not happening real time and are being released only at the end of the day," says Khandelwal of ANMI.
Implementation challenges aside, the industry at large has embraced the new rules which, according to many, are in the interests of retail investors. The only segment that may face some heat is offline brokerages with smaller customer base, who personally know their clients and often place trades on their behalf, collecting money later. "Such decades-old small to mid-sized brokers offer privileged services to their clients. They allow them to buy stocks first and get their cheques collected later. That privilege is gone. You have to collect money upfront from the customers," says Nithin Kamath, Founder & CEO at Zerodha.
Most online brokerages, discount or traditional, meanwhile have adjusted with the back-end processes. "The implementation process has been fairly smooth - much smoother than we thought. We did face back office issues or getting UCC codes uploaded with our depository participant, but we are up and running now," says Chaturvedi.
Hue and cry
One of the things that is bothering investors is not being able to use intraday proceeds to buy fresh shares. One can do that only after the shares have been delivered in your demat account after T+2. The move will hurt those who traded with huge exposure on slim margins facilitated by brokers.
"Previously even profits could be used for buying fresh shares within T+2 but couldn't be withdrawn. It was risky because new positions were being created on the assumption that the transaction would be made good. Now the Sebi has levelled everything," says Ghanisht Nagpal, Convener at Delhi Investors Association.
Secondly, now investors have to deposit at least 20 per cent margin upfront with the broker or pledge shares with the clearing corporations when they are selling shares. The only way to get away with the upfront margin payment is early pay-in, that is, the broker taking the delivery of the shares from client's demat account the same day instead of designated due date of T+2 .
"In the traditional set-up when you sell, say 100 shares, these are still in your demat account. You have to transfer it to your broker's account. What if you don't transfer the shares? So, brokers are taking a risk here. Sebi is asking them not to take that risk. Either get margin money upfront from the customers, or do early pay-in as a broker."
Thus, the market regulator has essentially stepped in to reduce leveraged positions in the market, which will protect retail investors. Chaturvedi of Reliance Securities says initially there was some resistance as Sebi, brokers and clients were not on the same page, but all this seems to be converging now. "Any move which is in the interest of retail investors and is done in a calibrated manner is the best thing to do."
Back in 90s, when the market shifted to demat of securities from physical certificates post Harshad Mehta scam, the market participants vehemently opposed the move, saying it would hurt retail investors. However, the benefits are for all to see.
"Overnight people had to give up the paper they were holding. Traders and brokers started making people insecure by saying shares will disappear from the depository participant (DP) accounts. But the shift was only meant to reduce risks and increase volumes. After a year everyone fell in line and started appreciating the demat process. Similarly, there used to be a fortnight settlement initially. Now it's T+2. By next year we will have T+1 . So newer systems are good once you adapt to it," says Bharat Gandhi, sub-broker with Angel Broking.
In fact, retail investors will be better off as shares will be directly pledged with the depositories instead of brokers that will prevent Karvy-like scams. "People have started pledging their long-term stocks and trade in others with the margins they get. Adjustment seems difficult now, but people will get used to it pretty fast."