ANMI representation to not further reduce intraday leverages offered by Brokerages.
Nithin Kamath
Founder & CEO at Zerodha & Rainmatter. Learning at Rainmatter foundation. Views are personal. Nothing here is advice.
About intraday leverages being further reduced to a Max of 5 times for stocks & minimum SPAN+Exposure for F&O from Sep 1st 2021, ANMI (NSE member association) has created a presentation requesting for this to be reconsidered.
Here are the arguments being made
Margin calculation logic (SPAN or VAR) doesn’t differentiate between intraday and overnight positions. Margins are collected to cover for risk. Intraday positions carry a much lower risk than overnight, so ideally the margin requirement should also be lesser.
SPAN calculation methodology changed in 2020. Volatility measure increased to 6 sigma from 3.5, SPAN margin period of risk(MPOR) covers for 2 days. Exposure margins to cover risk beyond 2 days. Our margin requirement structure now is maybe among the toughest in the world.
What value intraday traders add & why care for them?
They provide very important liquidity which reduces impact cost for everyone else(investors). Impact cost is a big consideration for large investors (domestic/international) when deciding markets/exchanges to participate.
It was important to put some restriction on max intraday leverage offered by brokers as there were systemic risks for everyone in the markets. It started with 20 times for Stocks & 25% of overnight margins for F&O last July and has been getting reduced every 3 months.
Reason we haven't seen a big dip in exchange trading volumes is due to the phenomenal increase in participation & volatility over the last 1 year. But as the leverages further get squeezed & growth in participation plateaus, we will see significant pressure on the volumes.
In the new peak margin regime, it is possible to ensure that a broker offering intraday leverage is funding from their own funds & not clients'. Intraday risk is on the broker and isn’t systemic. All of the above, valid points to maybe reconsider this regulation. 🤞
Not go back to the old regime of unlimited leverage. But lesser margin by some extent (25 to 50%) for intraday positions as compared to overnight positions, because they carry a lesser risk.
Disclaimer: Conflict of interest, coming from a CEO of a broking firm 😬
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