Mumbai: Brokers have increased the cost of trading in shares and equity derivatives as part of their risk mitigation measures in anticipation of sharp swings in the stock market on account of the election results. While some raised upfront margins – the minimum amount required for trading – in shares futures and options, others have sought more collateral than usual for trading. These measures are aimed at dissuading traders from taking risky positions ahead of the election results – considered a big market mover.
In its advisory to market participants, the BSE warned brokers to be extra vigilant and cautious while placing orders for execution on trading systems. “…trading members are advised to review all filters, controls, and limit parameters set at the client, trading member, admin level, etc, to make sure that these limits are appropriately calibrated from all the systematic risk perspectives,” the exchange said.
With positions by foreign investors in index futures and by high networth individuals and retail traders in stock futures at record highs ahead of the election results on June 4, brokers are expecting heightened trading activity.
HDFC Securities, in a circular to clients, said ‘cover products’ for the equity and derivatives segment would not be available on June 4, while intraday products will attract a minimum margin of 40%. In normal times, the minimum margin is 25%.
ICICI Securities has increased the margin for positions under the margin trading facility (MTF) from Monday with 30% for Nifty50 stocks, 40% for non-Nifty F&O stocks and 50% for other stocks. In normal times, this margin is about 25%.
The margin requirement differs for every broking firm and varies according to client profile. The percentage may also differ according to the stock, based on the risk involved, liquidity and volatility.
Nuvama has increased haircuts on stocks provided as collateral by 5% for both equity and derivatives segments, including the MTF from Monday. The margin for fresh leveraged buying has been increased by 5% across products in the cash segment and an additional margin of 3% has been applied on all derivatives trade.
IIFL Securities has raised margin requirement by an additional 5% for all stocks, both in cash as well as derivatives between June 1 and June 6.
Motilal Oswal Financial Services said they have increased margins and the haircut on the stocks to take care of the volatility in the market for this week.
Many traders, who have taken large positions ahead of the Union Budget scheduled in July, may also have to shell out more funds if brokers increase margin requirements, said brokerage officials. Clients may have to allocate additional funds to continue with open positions. Failure to bring in more margins would lead to a squaring up of bets.
