How Things Will Change For Intraday Traders as per revised SEBI norms?

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How Things Will Change For Intraday Traders as per revised SEBI norms?`

Stakeholders in the Indian Financial markets are getting affected with SEBI’s new strict rules on the intraday trading processes and said half-baked measures to the new rules implementation process.

The Securities and Exchange Board of India (SEBI) has implemented new norms on securities pleading on 1st September 2020 resultant investors and brokers are struggling with the chaos. Change in the margin system brings disruptions in volumes of intraday trading.

What is New Magin Pledge-Repledge (MPR) System?

  • SEBI recently implemented new norms in margin trading. As per the new rules, investors have to bring in upfront margins, at least 20%, for every trade they execute. This will terminate the ‘T+2 day’ system where an investor could pay the whole investment amount within 2 days of executing trades. Margins can be in the form of cash or shares available in the client’s Demat account that would be collateral for debts.
  • With the implementation of new rules, investors are allowed to pledge the securities to the concerned person/clearing authority directly and continue to enjoy rights on their securities.
  • Earlier brokers could get the right to access a client’s Demat account and their securities through the power of attorney (POA). They transfer collateral securities to another account. In case the client fails to repay the debt, the broker is free to sell the stocks pledged for the margin. Some brokers found misusing the POA. The POA cannot be used for title transfer anymore.
  • However the new margin pledge system will take time to normalize and stabilize, it will ensure transparency in trades and make the trading system more secure.
  • With the upfront margin system, it is estimated that almost 30-35% of the Intraday volume will be decreased which was based on a leverage facility of 2-3%.

New Intraday Trading Rule – Key Highlight

As per the latest intraday norms, investors can not use Intraday profits for further trading on the same day and next day. It means the intraday trading profit made on Tuesday will be reflected in T+2 days and can be used on Thursday only.

Latest Guidelines For Investment Advisors

According to the SEBI’s latest notice for Registered Investment Advisors (RIAs), a new client will be offered either advisory or distribution services of the RIA at the time of boarding. And the existing clients can opt from advisory services or distribution.

The guidelines will be implemented on September 30, 2020. It is necessary for RIAs to sign investment advisory agreements with clients by 1 April 2021. As most brokers also give investment advisory, this guideline should be taken in tandem with the intraday rules.

Brokerage Accounts The prerequisites brokerage accounts – online trading accounts and Demat accounts – are equally important and mandatory as earlier for stock trading. Brokers are trying to cope up with SEBI’s norms. While choosing a brokerage firm, check out their call support system especially in the present chaos. Be sure to read these latest regulations and check for revised paperwork from your broker.

Read More: How Digital Transformation Is Impacting Insurance Industry

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