Important regulatory changes with regards to margin and pledge creation

The regulator has mandated that shares must be pledged to IIFL Securities using One-Time-Password (OTP). The pledged shares can be further re-pledged to clearing members.

Sep 01, 2020 07:09 IST India Infoline News Service Narendra Jain |

As per the new SEBI rules, which come with effect from September 01, 2020, the new margin and pledge system will result in some changes in the way limits are given. I will try and put this in simple terms so that you can understand the gist. Our customer services team and relationship managers would explain this in greater detail.

Pledging of shares: Earlier, we used to give limits based on shares that were in your IIFL Securities demat account where we had Power of Attorney (PoA). Now we cannot give limits based on PoA. 

The regulator has mandated that shares must be pledged to IIFL Securities using One-Time-Password (OTP). The pledged shares can be further re-pledged to clearing members. You would have received a link via SMS on your registered mobile number or email from NSDL or CDSL, based on where your demat account exists. When you click on the link, it takes you to a page where you can select shares to be pledged. You are then asked to generate OTP, which you get on registered mobile phone. Type OTP and you are done. 

I did this myself for my account with IIFL Securities and the entire process was smooth and completed in less than one minute, depending on Internet connection.

The PoA will be used for marking delivery of shares when you sell them as it was earlier.

Many of our customers have already done this. Please do the needful, else your margins will be impacted on September 1, 2020. The pledge creation takes time because of system issues as the entire process is new.

If you create pledge on the transaction or T Day, it will reflect on T + 1 basis. You can request to create pledge on our trading terminal also. 

We are trying to ensure that your trading experience remains relatively unaffected despite the new margin requirements that are coming into effect from September 1, 2020.

Early payin: Our technology allows early payin of shares, which means that if you sell shares from your demat account with IIFL Securities, which are pledged with us, then you will be able to use the sale proceeds to buy some other shares or take derivative positions. We will also not deduct upfront margin where we are able to do early payin of shares.

Here are answers to some of the most common questions:

What will happen if I sell shares and buy the same back before market closes or I started as a delivery trade but made the same intra-day?

Answer: For intraday trades, first leg of the order would require margins.

Will BTST be allowed for Sale of shares purchased the previous day? 

Answer: Yes, it will be allowed with margins blocked for both buy and sell side. You would be allowed to take other positions to the extent of proceeds available less the margins blocked.

What happens to intra -day profits?

Answer: They cannot be used until they are settled, which is on a T + 2 basis for cash and T + 1 basis for derivatives. For options, if you exit your long options or initiate a short option, you can use the proceeds for doing intra-day options in the same segment only. You cannot sell options in equities and use the credit to buy commodity or currency options. 

The author of this article is Mr Narendra Jain, Director, IIFL Securities Ltd

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