Key must-know facts about delivery margin

Demat and trading account transactions are regulated and monitored by SEBI, which ensures that stock trading runs smoothly. Usually, stock exchanges put margins in place to ensure that investors have adequate funds for trading/investing. Margin refers to the minimum amount you must have as an investor to execute a trade.

The concept of delivery margin was introduced by SEBI recently under the peak margin norms where peak margin is the minimum amount that a broker must collect from his/her clients for delivery or intraday trading. The article below will explain what delivery margin is and what it entails.

History of peak margin
 

SEBI introduced new guidelines on peak margins and reporting in December 2020. Earlier, brokers collected margins upfront only for the derivatives segment. They reported client transactions and collected margins to the clearing corporations and exchanges.

To determine the margin obligations, clearing corporations and exchanges considered a minimum of four random snapshots of the trading positions. The highest margin among the snapshots is considered the peak margin of that day. And this is the minimum margin that a broker must collect from their clients while placing an intraday or delivery trade. 

Understanding the delivery margin
 

Prior to the implementation of the peak margin, when you sold a share, you received 100% sale benefits on the same day which you could use to purchase new stocks. For instance, if you sold a stock of a company worth ₹50,000, you received the whole amount on sale benefit and could reinvest the credits in new stock purchases.

After peak margin, when you sell any stock now, you receive an 80% sale benefit on the same day and the rest 20% gets credited to your Demat account on the following day after deducting the charges and fees.   

To understand better, let us consider the following example. As a stockholder of an ABC company, you sell shares worth ₹ 1,00,000 on Monday. You will receive ₹80K on the same day as a credit to invest in other stock. Once the market closes on Monday, the shares will be debited from your holdings as per the trading norms. The remaining ₹20K is blocked as delivery margin and will only be credited on Tuesday. 

For all your investment solutions, you can open an IDFC FIRST Bank 3-in-1 Account which t comes with no account opening charges and no AMC for the first year on a Demat Account. We bring this account in collaboration with ICICI Securities Limited. This integrates your trading account managed by ICICI Securities Limited and your Demat account maintained by IDFC FIRST Bank. You can conveniently open an IDFC FIRST Bank 3-in-1 Account with us online anywhere anytime.

The peak margin and delivery margin norms can be seen as a risk management step by the SEBI in favour of both investors and brokers. It ensures that they have surplus funds for trading without the risk of engaging in unsafe trading. The norms secure brokers and their funds by implementing fines on the traders who do not clear delivery charges.

In addition to these norms, SEBI has also eased the service requests for investors. Now, investors can conveniently update their nominations, PAN details, bank accounts, and more.

Disclaimer

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