NSE asks brokers to return penalty charged to clients on shortfall of upfront margin; issues circular

On 20 July 2022, Zee Business was the first to report that after the suggestions made by the market Regulator Securities and Exchange Board of India (SEBI), NSE asked brokers to return the penalty amount taken by the brokers on upfront margin shortfall collection. India’s largest exchange NSE has issued a circular regarding this and has warned brokers. Zee Business’ Brajesh Kumar reports. 

NSE issues circular, warns brokers against collection of upfront margins

- NSE has issued a circular to warn the brokers

- The circulra has directed brokers to return penalty collected by them from 11 October 2021. 

- No penalty on client for upfront margin shortfall. 

- Putting burden on the clients on shortfall of upfront margin is wrong.  

- The complaint is that many brokers are still collecting it

- This could impact those brokers whose trading volumes are significant in Futures & Options (F&O)  

Why upfront margins?

- It is mandatory to take upfront margins under the new margin rules of SEBI. 

- The rules were applied in four phases between December 2020 and September 2021

- Implemented on basis of 25%, 50%, 75% and then 100%

- It is mandatory to take 100 per cent upfrong margin from September 2021. 

How much is the penalty? 

- On shortfall of margin, penalty levied is 0.5-1.0 per cent 

- For amount less than Rs 1 lakh, the penalty is 0.50 per cent. For amount over Rs 1 lakh, the penalty amount is 1 per cent. 

- If there are three continuous shortfalls, for every subsequent shortfall, the penalty is 5 per cent 

- If there are more than five cases of shortfalls in 1 month, subsequent shortfalls will invite 5-5 per cent penalty. 

- There is a GST of 18 per cent on the penalty.