As new pledging rules kick in, some brokers and traders report glitches

The new upfront margin rules and pledge system were brought in by Sebi despite protests from the industry body that claimed market stakeholders were not prepared to implement these rules. The body demanded another extension to make sure everything...

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Industry body ANMI in a letter to the market regulator on Friday had highlighted certain persisting operational challenges that involved CDSL and NSDL.
NEW DELHI: On the first day of trading with new margin rules on Tuesday, some top brokers and traders reported problems while others said their operations functioned smoothly. Volume on BSE also saw a drop compared to the previous two sessions.

The new upfront margin rules and pledge system were brought in by Sebi despite protests from the industry body that claimed market stakeholders were not prepared to implement these rules. The body demanded another extension to make sure everything ran smoothly.

“Some of our clients faced some challenges in getting through pledge authorization link/OTP from NSDL/CDSL. The back office vendors had to struggle to implement the new requirements in time. However, our back-office and IT teams have been working round the clock to ensure a smooth transition,” said B Gopkumar, MD and CEO, Axis Securities.


He added that the firm has complied with the new rules and made the systems ready in time. “The completion of the margin pledge process, however, depends on the client. If the client does not do his part, then the margin pledge cannot be completed,” he added.

Industry body ANMI in a letter to the market regulator on Friday had highlighted certain persisting operational challenges that involved CDSL and NSDL. On Monday, it said Sebi’s move to go ahead with the implementation “came as a big surprise”.

India’s largest broker, Zerodha, said its customers did not face any issue and its systems ran smoothly. The broker said it had already developed an early payin system, which meant the new upfront margin rule did not affect its customers.
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Queries sent to Kotak Securities, Upstox and HDFC Securities did not elicit responses.

Traders who we talked to also said their experience was largely glitch free. However, there were reports of certain discrepancies in margin calculations. “At the broker end, there are certain problems. The margins that should come from clearing corporations are not coming fully. The exchanges that were claiming everything was ready, still have some faults in their system,” claimed Ghanisht Nagpal, Convener at Delhi Investors Association.

Nagpal said many traders, including him, have halted trading for a week as they are awaiting clarity on the newly introduced rules.

“There is no clarity. It will take at least a week to sort out everything. For example, in derivatives, things are not clear if we will get to use the premium that we receive on option selling as margin on the same day. If we do not get the margin the same day, how will we offset out options positions,” he said.
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Zerodha said its system will allow the proceeds or credit of option premium to be used for only new long/buy option trades on the same trading day and only within the same segment, i.e, proceeds from equity options can’t be used for currency or vice versa. But traders can use this proceeds or option credit for all other types of trades only from the next trading day.

The volume on BSE and NSE also saw a drop compared to the last couple of days but it was more than the 30-day average. On BSE, 52.61 crore shares were traded on Tuesday, against 63.63 crore on Monday and 70.79 crore on Friday. The 30-day average stands at 47.29 crore shares.
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Despite operational glitches, industry believes in the long run the new system will be positive and the market will eventually adapt the new rules with comfort. .

“The new guidelines will bring about more transparency in the system and foster a stronger relationship and trust with the brokers. This development will be favorable in strengthening the ecosystem and will lead to an improvement in the capital market penetration in the long-run," said Gopkumar.
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