Why the new SEBI circular on margins in cash segment won’t affect you

December 18, 2019

SEBI put this circular on November 19th 2019 which will be in effect from Jan 1st 2020. This got recently covered by press on how it is probably the worst thing that can happen to a retail trader. Various convoluted versions of what the press said is being shared on social media. So here is an explanation on why this circular is positive for the industry and won’t affect most retail traders. Let me start off with first explaining why SEBI may have put in this rule in place to collect margins from customers and report to exchanges.

Over the last couple of years, especially after the financial frauds at a few brokerage firms, SEBI has been working hard to fix a legacy issue of the broking industry which was a loophole that got misused by these firms. This was essentially a way to use one client’s balance (cash or margin from pledging securities) for another client trades, or by the brokerage firm itself.

We already had a rule in place for collecting and reporting margins in the derivative segments (Equity, Currency, & Commodity). All brokerage firms receive a file from the exchange at the end of the day detailing the margins required for positions taken by their clients (SPAN + Exposure). The brokerages are then required to upload back details of margins available in the client’s account. If the available margin is lesser than the exchange stipulated margin, a penalty  is levied on the shortfall. This reporting ensures that a client can take positions only to the extent of margin in the account.

This circular, issued earlier this year now disallows brokerage firms to pledge client securities to any third party, even if the client hasn’t paid the entire money to purchase the security. Even so that clients aren’t allowed to do an off-market transfer for a loan anymore, it can be done only by marking a pledge to an NBFC directly from client demat, and funds from pledge get credited directly to the client’s bank account. This has ensured that client securities can’t be mis-utilized by the brokerage firm.

The last fix needed was for the equity (cash) segment. The traditional practice of brokers allowing clients to buy stocks for delivery without asking for upfront margins still exists. A client is asked to remit the purchase through a cheque or online transfer after the execution of the purchase transaction. If the client takes longer than 2 days to remit, the broker earns additionally by charging interest on the debit balance. While this acts as an additional source of revenue for the broker, it increases the risk for the brokerage firm, as well as the capital market ecosystem as the stock price can go down and if no money/margin is collected from the client, the client could default.

The other issue here is that despite the fact that the client hasn’t paid for his purchase, a brokerage firm would still be required to pay the settlement obligation due to the exchange on T+2. The broker could potentially use unutilized credit balances belonging to other clients to fund such purchases of a different client. With this new circular of collecting and reporting margins for stocks, the equity (cash) segment becomes exactly like the derivative (F&O) segment. Instead of SPAN + Exposure, VaR+ELM margin  is required to either buy or sell stocks. This not only reduces the overall risk, but the reporting mechanism ensures that one client’s funds can’t be used by another client or the brokerage firm itself going forward.

How does life change for you?

Nothing changes at Zerodha, or at most online brokerage firms for that matter, since we have always asked for accounts to be funded before placing a purchase order. It will definitely change for people trading with traditional brokers where the practice was to pay money or deliver stocks only after taking a trade. Now they will have to maintain some margin with the broker (for purchase transactions) or transfer stocks to the broker in advance through DIS slips (for sale transactions).

Intraday trading?

Most online brokerage firms already charge margins to either buy or sell, so this practice will continue. What could change though is the intraday leverages provided by the firm. Check this exchange list  for the minimum VaR+ELM margin for various stocks. A stock like Reliance requires 12.5% margin which equates to 8 times leverage. However, since all margin reporting is done at the end of the day, a brokerage firm could potentially continue to offer higher intraday leverage. But the broker will have to do it from his own (clearing member) funds. This means that if a brokerage (clearing member) firm isn’t well-capitalised, they’ll be forced to reduce leverage for intraday trades.

Equity delivery based trades?

For buy delivery trades, the brokerage firm will have to now collect minimum VaR+ELM. So if clients got much higher leverage for this until now (Margin funded trades), it will be reduced to minimum VaR+ELM. Since currently at Zerodha, we insist on the entire delivery purchase value to be funded in advance, there’s no other requirement to bring in VaR+ELM. There could be stray cases where you may have bought a stock for Intraday and are forced to take delivery for any reason, in such cases, if you are short on the margins, a penalty will get levied for the shortfall amount.

For sell delivery trades, the brokerage firm continues to run the risk of the client not delivering the stock after selling. This can’t really happen in cases where the brokerage firm has the POA on demat to debit shares when the client sells a stock, as the firm can ensure the client can’t transfer stocks out. But wherever the brokerage firm doesn’t have the POA, they will have to collect margins before allowing clients to sell stocks to ensure that in case the client doesn’t deliver, there is margin available to make good of any potential auction settlement loss to the buyer.

Almost all online brokerage firms today have POA on demat, so ideally when selling shares, no margin will be required. But wherever POA is not there (all our new accounts are non-POA accounts and we will soon give an option for our POA accounts to switch to non-POA) the brokerage firm can do an early pay-in of securities to avoid needing to ask margin from the customer selling stocks from holdings. By early pay-in I mean, the broker can move shares from client demat to the exchanges on the same day instead of on the settlement day i.e T+2.

So yeah, the above circular will only clean up the system and will most likely make no difference to the life of any retail equity investor/trader.


Happy Trading,

Founder & CEO @ Zerodha

Post a comment

  1. Abhinas kumar says:

    what is the margin required for selling a share in t+1 day, t+2 day, and t+3 day onward from holding?

  2. Saurabh Bhagvatula says:

    Suppose a long-term investor invest 10 lacs in a stock for 20-25 years in a stock. The stock provides nearly 20-25% return, then the return comes out to be around 5-6 crore. How will the non-POA, long-term retail investor get one’s return back. How come a retail investor arranges for 1-2 crore for his investment.
    Or if that investment happens for 30 year with average CAGR of 20-25%, the return comes out nearly of 100 crore. 20 Crore margin to get back return.
    How does a long-term retail investor get one’s return back, when one can’t sell after investing for long-term?

  3. vipul says:

    i have both trading as well as demat a/c with one sebi registered broker .i have also given POA STILL HE ASKS TO DEPOSIT MARGIN FOR SELLING SHARES FROM MY DEMAT A/C What action i can take should i complaint to sebi or should i change my a/c from that broker

  4. Nipun Anand says:

    Hello Nithin Kamath Sir,

    If I have 100 shares @ 1000 of Reliance in my holdings and I sell at 2000, so I have to provide margin before selling the stocks ?

    Do you have any such facility where I can sell the stock from holding without providing any margin

  5. Md Roshan says:

    Dear sir,
    Please I am not fully understand. I am a small intraday tader with small capital. I do intraday trading and earn around 500 to 1000 everyday in the equity.
    But, I am really sad with this new sebi rule. What do the my really mean, they mean intraday trader with small capital will come to an end due to no leverage?
    Will there be mis with leverage after this rule. Please explain

  6. Anmol Shah says:


    If I am correct, new margin collection framework in Equity cash segment is in effect from 1st August, 2020 ?

    I have following questions :-

    1. Do we will need to provide margin for selling stock in which is already in our Zerodha’s Demat Account ( irrespective whether PoA is provided or not ) ?

    2. Suppose I buy any stock today with 100% fund on delivery basis and would like to sell it the very next trading day. Will I require to provide margin while selling the stock on T+1 day because it is not settled demat account ? Also, if I buy another stock on T+1 day with the sale proceed of previous stock will there be margin shortage then ?

    3. Suppose I already held (x) no. of shares of company A in Zerodha’s demat account.On T day, I buy (y) no. of shares on same the company A. Will there be any margin requirements if I sell (x+y) no. of shares of company A.

    @Nitin0dha, would be more than happy if you can explain.


  7. Test says:


  8. Nandkumar says:

    I have one question.if sometime I want MIS order without any leverage/margin what I do

  9. sameer kalgutkar says:

    “Almost all online brokerage firms today have POA on demat, so ideally when selling shares, no margin will be required. But wherever POA is not there (all our new accounts are non-POA accounts and we will soon give an option for our POA accounts to switch to non-POA) ”

    1. This is confusing – from the first statement i guess it is good to have POA for smooth operation. Then why encourage POA clients to go Non-POA
    2. How to check accounts POA status

  10. Deep Dave says:


    I trade Nifty Furtures and it used to take me around 20-25k to trade BO orders.

    Will it still remain the same or will I need to put in full 1.05 lks approx to trade a nifty future intraday?

    • Roy says:

      @Nishshkumar Jaani
      “Why SEBI forcefully wants to have clients demat n trading with same entity ?”

      You don’t have to ,but if they are separate be ready to keep additional margin on your trading account as your margin requirement will be higher in some case.

    • Roy says:

      Full I guess

  11. Nishshkumar Jaani says:

    Why SEBI forcefully wants to have clients demat n trading with same entity ?

  12. Roy says:

    “But after baning leverage there will be no more unhealthy fluctuation by big traders & sl hits becomes more lesser time & can make handsome money . ”

    SEBI rigged the market,in favour for big players…
    Extreme Volatility(price moving from mean in any one direction rapidly) does not happen due to large numbers of traders(or in other words enough liquidity for each price level) ,rather less number of traders ,its illiquidity in price levels and monopoly by big hands.
    So be assured SL will hit more…now

    You cant just apply rules and regulations of developed market in an emerging market like India.
    The living standard of US is different than India ,people make more in US in terms of value ,but in case of India we don’t .This business or most businesses works around credit based system,

    I personally believe in India brokers provides too much of leverage and that should be reduced ,but not like this with some foolish regulation.This will only hit the retail traders sentiment which will be very negative . retail traders and people investing in mutual funds will also be effected ,now big hands will have monopoly over the market over long term.We already saw in 2019 how markets performed narrow.

    Simply to put there will be not much edge compared to other markets in trading in India less money to borrow and STT ,GST and our friendly year end tax ,and cherry on the top less liquidity.

    Lets see how things pan out.

  13. Akash n v says:

    I am new to trade & getting health accuracy & strategy in market in a span of 8 months of paper trading & observation but now i am feeling do my time & effort go worth less now i don’t
    But after baning leverage there will be no more unhealthy flucation by big traders & sl hits becomes more lesser time & can make handsome money . But the problem is investment for retail traders let’s wait & see what happens & if anybody can help in trading please whatsapp me 7019089011 i request please guide me someone strategy any good strategy please share

  14. Mareeswara pandi says:

    I want only one clarification I am doing intraday if I want to make trade means due to this new rule leverage given or not ,please explain I got confused

  15. Sachin says:

    After reading all this one thing is sure now share market will also lead to recession.
    if SEBI starts to put control intraday margin.then discount brokers will out of the mkt.
    Solution is SEBI should stop futures n options trading.
    Again india share traders % will move only as 1% as compare to the worlds share mkt.
    Very bad move from SEBI..
    Retailers should stop trading and start searching job in Operator’s n Financial institutions company.

  16. Sheema says:

    What effect on option selling for positional option selling.

    Will it have an impact on weekly and monthly option selling for nifty.

  17. Pratik says:

    Hi Sir,

    After this new margin rule, if a intraday trader doing trading only in CASH SEGMENT INTRADAY (Not Derivative/Not Future), what would be impact ? As Seen in circular that leverage will be reduced only for F&O . So what about Intraday Cash (Same Day Square off and no delivery) leverage ?

  18. Sweta Kesarwani says:

    One question- why do you say that POA accounts are going to be converted to non-POA?

  19. Ishwar says:

    Take an Example

    Share: Auropharma 30-jan-20 (BO – NFO- Futures)

    Current Price: 460

    Scenario: If I want buy future (using BO) with StopLoss: 5rs/- that is 455 would be my stop loss

    In above scenario, currently Zerodha offering 27.8x Leverage (around 17000 is sufficient to place the order) , now with latest regulations, what would be the Leverage Zerodha going to Offer???

  20. Anurag says:

    Hi..I am not clear on the equity segment bracket orders. Currently, we are getting margin of 15x in some of the stocks. How much would this be reduced to from 1st Jan 20 ?

  21. Rahul says:


    Please add the feature of saving chart layout in server and allow it open in any system.

  22. Niraj says:

    single margin facility – When its getting started in Zeordha?

  23. Hemanshu says:

    Hi . Have just started trading futures. I have a position of 2 lots in bharat forge dec expiry . I was not aware of this physical compulsory delivery circular of SEBI . Now wat will happen & Wat am I suppose to do to avoid any losses or MTM .. I have sufficient margin of approx 3 lacs in my account. How do I close this trade

  24. Mahesh says:

    Why I am being levied a stamp duty of 50 rupees for Himachal Pradesh while other brokers are charging only 0.001% as stamp duty for Himachal Pradesh. Why is it 50 rupees on Zerodha only?

  25. durga prasad says:

    Sir when will new margins come for hedgings in f&o Is it come 100% or only chance pls explain

    • Matti says:

      This is happening, but there’s no formal announcement as to when it’ll go live. We should hopefully know more by Jan 31st.

  26. Narayan Joshi says:

    I think this circular would benefit Zerodha & its clients, as it has got the NBFC License.
    “This circular, issued earlier this year now disallows brokerage firms to pledge client securities to any third party, even if the client hasn’t paid the entire money to purchase the security. Even so that clients aren’t allowed to do an off-market transfer for a loan anymore, it can be done only by marking a pledge to an NBFC directly from client demat, and funds from pledge get credited directly to the client’s bank account. “

  27. Aditya says:

    Suppose I have 100 shares of Kotak Mahindra Bank which I bought last year. Now I have to sell them today. Will I require the margin for selling it ?

  28. Pranay says:

    Hello Mr.Nitin

    For margin calculations which day closing price are considered I think it is dynamic 5 times a day
    Your valuable comments invited

  29. S K PUNEETH KUMAR says:

    Very confusing. Please use more simple language.

  30. Shubham says:

    Sir, from this margin rule, for the sale transactions, work load increase because non poa clients saleable holdings must be transfered on same day or in advance or client will give the margin, if they can’t broker will give the penalty and for poa clients it will become mandatory for broker to debit/block the shares in client account as soon as possible. And for buy transactions specially intraday, client will give margin forcefully for short period means time/bank txn charges will become wastage. From all these things, we reached only one conclusion broker’s work will increase/salary cost increase and after some time that will give impact on brokerages plans offer to client.

  31. Krish says:

    Hello Mr. Nithin,

    Does it affect F&O segment CO, BO margins ? It surely affects Equity segment intraday margins, (MIS, CO, BO).
    What kind of impact it may have on the liquidity of the equity segments.


    • For now it doesn’t affect. But even with FO segment, a clearing member can allow clients to leverage only to the extent of own funds. So smaller brokerage firms not capitalized may not be able to offer intraday leverage.

  32. Sushil says:

    Dude retail client never default.
    Only big client default.
    You can’t recover money from big client.
    SEBI, RBI are biggest jokers of India.
    RIP !!?

  33. Barathi K says:

    This is appreciate to further incrimination from brokerage firms ….

  34. Junaid says:

    Is this going to affect BTST trades for non-POA accounts? Please expain.

  35. Anil Kumar says:

    @Zerodha So, if I understand correctly, a client may continue to pledge his stock holding to Zerodha to raise margin for trading in derivatives shall continue as at present. Please confirm.

  36. Pankaj says:

    What is the impact on securities pledged for FNO margin?

    Are such securities are pledged with any NBFC or zerodha or directly to exchange?

  37. Shinoj says:

    In above article as mentioned “Almost all online brokerage firms today have POA on demat, so ideally when selling shares, no margin will be required.” Confused by this statement…

    Is margin required or not for selling?

    Can Zerodha work on increasing their margin leverages as much as upstox? I find upstox as more reliable.

    • Hmm.. Like I have mentioned, margin is not required for selling with us. I think we offer similar leverages to others, also with this new regulation, it mostly likely will get regulated in terms of maximum leverage.

      • Trilok Gupta says:

        Thanks zerodha for articles on every possible doubt. Varsity and your articles are so easy to understand.
        So i understand that
        1. I am giving 100% upfront already in zerodha so, no need to think about margin.
        2. If i sell my shares from demat holding so zerodha doing early pay-in so there is no need to think about margin again.
        3. 1 question can i use the fund/cash the next day after selling shares from my holding? Or i need to wait 1day or 2day as told by everyone?

  38. Raghuraman MS says:

    Nithin, thanks for your detailed explanation. Hope this will put end to all the speculative news.

  39. Rajendra Rao says:

    Timely article in view of recent broker oils exposure. Can NRI customers of Karvy switch to your portal .Those who trade from their NRO a/c on delivery basis

  40. Mohit Singh Puri says:

    What about prop trading desk?
    Can client money be used by brokerage firm for proprietary trading?


    This is a transparent circular. The clients of the Zerodha will not be affected. Thank you.

  42. surya prakash tiwari says:

    Very good article. yesterday i read one article of a well known tv analyst, who was just describing it negatively for retail traders/investors ( he was indicating that margin money requires even if you want to sell your own shares). But happy to read this article and feeling sense of relief. thanks Nithin ji

    • Subramanian V says:

      MARGIN MONEY IS REQUIRED for delivery trades if you have trading ac with one broker and demat ac with another broker. MARGIN MONEY IS NOT REQUIRED if you are having both ac with same broker AND ALSO you have given POA to broker

  43. Arka Majumder says:

    I have few questions
    for Intraday trades does that mean BO & CO will be off?
    I have a POA demat account with zerodha,if i convert it non POA do I have to put the margins to sell off stocks from Holdings?

    • If you are referring to us, we will continue offering these products. The leverages might reduce, but products will remain. Even if you convert non-POA, we will do early payin so you don’t have to put up margin.

      • Arka Majumder says:


      • Anoop says:

        Dear Nithin,

        Please never reduce the leverage for Retail traders esp who are into Intraday trading and using BO and CO. In fact I want it to be increased more than the existing levels. Leverages is the fuel for Daytraders and so lesser the fuel, lower will be the trades overall and so nobody benefits from lesser margins. Please inform this to RBI and other concerned parties ASAP.

        • Sourin Saha says:

          They are obligated to do so since SEBI wants to kill retailers. They only want the big fishes to remain the market. Their reason is retailers will blow up account and what about the big guys. They will benefit anyway

  44. Prashant says:

    One question. Why we can’t see CRUDEOILM 20 JAN contract in kite?

    How can I trade in crude jan contract?

    • Abhishek kumrawat says:

      Crude oil mini lot …. Mcx not launch any more

    • Vivek Agrawal says:

      In consultation with SEBI, it has been decided not to launch any further contracts in Crude Oil Mini (10 Barrels) Futures contract. The existing Crude Oil Mini December 2019 contract expiring on December 18, 2019 would be the last contract available for trading.

  45. Vamsi says:

    Can I expect same levarage from Zerodha that is 12.5 times in yhe future or you are planning to reduce the levarage ?

  46. Ansul says:

    Thank you for this article. Good work by SEBI.



    SEBI put this circular on SEBI 8th 2019 which

  48. Ramya Sruthi Prostitute Sathyamanagalam says:

    super boss.. i like the way changed.

    • Monkey Singh says:

      Oh. Bloody every one online, even so called sebi registered advisors has been saying that henceforth all leverage intraday trading will come to an end. The circular makes no mention of upfront full payment. The word margin is still used.