In this article we’ll try to answer some of the common questions you may have regarding Margin Against Shares also known as Collateral.
What is Margin against shares?
Margin against shares (MAS) is basically a value added service. It allows you to get exposure/margin against shares in your demat account by keeping them as collateral (pledge). The collateral value of these shares is calculated after applying a hair-cut. The key highlight of MAS is that you may trade with Margin against shares with Zero Cash Balance in the Equity Derivatives and Currency derivatives segments (Both Intraday and Positional Trades) and also in the Cash Market segment (Intraday trades). You need not have cash in your Trading Account to meet the margin requirements. The pledged stocks (collateral) can be used for Margins.
Cash equivalent collateral is also considered as a cash component to meet the margin requirement. Let’s understand with an example.
Example: Say you have pledged shares worth Rs 2,00,000 (value after haircut) and also pledged cash equivalent collateral of amount Rs 1,00,000 (value after haircut). You wish to buy 1 Lot of NIFTY & the margin required to initiate the position with the Overnight/NRML Product type is Rs.1,50,000. Let’s see the scenarios below to know how the margin requirement is fulfilling.
Without opting MAS:
You will need to maintain Rs.1,50,000 cash in your account.
With opting MAS:
Let’s assume you have zero balance. Now, 50% of the margin requirement is considered from non cash collateral and 50% is from cash or cash equivalent collateral.
Margin requirement = 50% of 1,50,000 from 2,00,000 + 50% of 1,50,000 from 1,00,000
= 75,000 + 75,000 = 1,50,000
Since there is no shortfall, you are not required to pay the DPC (delayed payment charge).
Formula for calculating collateral value after Hair-cut:
(Quantity of the stock pledged x Last trading price) x (100% – Haircut% for the stock). For e.g. if you had pledged 1000 quantities of SBI scrip trading @ Rs 400 which has a haircut of 20% then you shall be eligible for the collateral value of Rs.3,20,000 i.e. [(1000*400) x (100% – 20%)].
Please refer to this link to check the hair-cut percentage for various scrips.
Before explaining the process to get margin against your shares let us discuss a few of the features of MAS.
- Segments & product types available for MAS
|Cash||Intraday (MIS), CO & BO|
|F&O||Intraday (MIS), Overnight (NRML)|
|Currency Derivatives||Intraday (MIS), Overnight (NRML)|
MAS will not be available for buying securities in Delivery (CNC) and for buying Options contracts. Also, MAS will not be available for trading in the commodity segment.
- List of scrips available for pledging under MAS: There are almost 1000+ approved securities (Stocks & ETFs) which are available for pledging. Please refer to this link to check the hair-cut percentage for various scrips. This list is decided as per TradeSmart’s internal risk policies. It will be reviewed periodically and updated accordingly.
- List of scrips falling under cash equivalent collateral.
- Charges: There shall be charges of Rs 15 for pledging and Rs 15 for unpledging + GST per scrip for the day irrespective of the quantity. So if you have pledged 100 quantity of Reliance and 200 quantity of ACC you will be charged Rs.30 (15*2) exclusive of the GST. The pledge charges will be debited from your ledger the day you place the pledge request. Similarly, the charges will be applicable for unpledging.
- Delayed payment charges (DPC): For F&O and currency trading, the Exchanges accepts 50% margin in cash or cash equivalent collaterals and 50% in shares. The collateral received from you will be given to the exchange against your margin requirements. In case the cash or cash equivalent collaterals are less than 50%, delayed payment charge @ 0.05% per day will be levied on the amount funded by us.
For Cash the delayed payment charge @ 0.05% per day will be levied on the cash shortfall portion on the total ledger debit. If there is no ledger debit at the end of the day, these charges will not be levied. The Interest will have to be paid on outstanding ledger debits. A rebate shall be given to traders up to (50% of exchange margins) or collateral value after haircut, whichever is lower. Let’s understand the DPC using below examples:
Cash Balance = 0
Non cash Collateral Value after haircut = Rs 5 lacs
Cash equivalent collateral value after haircut = Rs 40
Margin used = Rs 1 lac
DPC shall be charged on = Rs 10,000 i.e. (50% of 1 lac is considered from non cash collateral + 50% of 1 lac is considered from cash and cash equivalent collateral)
Cash Balance = Rs 5000
Non cash Collateral Value after haircut = Rs 5 lacs
Cash equivalent collateral value after haircut = 40K
Margin used = Rs 1 lac
DPC shall be charged on = Rs 5,000 i.e. (50% of 1 lac is considered from non cash collateral + 50% of 1 lac is considered from cash balance and cash equivalent collateral)
No fresh trades allowed if ledger is in debit beyond T+5 days: Clients who are having a ledger debit due to MTM loss, brokerage, AMC or any other charges for T+5 days, will not be able to create new positions in any of the segments beyond T+5 days. To understand this better let us take a look at the below example.
Ex: Let’s assume you have traded on Monday,1st June (T day) using Margin Against Shares. At the end of the day, the account is in debit (due to MTM loss etc.). In this case you are still able to use MAS benefit for further intraday trading and take position in derivatives (FO/CDS) till next Monday i.e 8th June (5th day excluding trading holidays). If the debit continues beyond Monday then you will not be allowed to place any new trades from Tuesday 9th June (6th day) onwards. However, you can square off the existing positions and sell your holdings. Your account will be enabled for fresh positions/trades the day after the ledger comes into credit.
We would suggest keeping your ledger in credit balance to be able to make the most use of your pledged shares.
- Brokerage Plans: MAS is available for 0.007% (Value Plan) and Rs 15 (Power Plan) brokerage plans only.
- Trading Platform: The pledged benefits are available on all our trading platforms such as Desktop based, Mobile and Web based platforms.
- Corporate Action: In case of any corporate action for pledged stocks the benefits of corporate action will be transferred to the demat account it is in. Hence, in case
- Dividends: In accordance with the provisions of Section 195 of the Income Tax Act, 1961, the dividends will be taxable. Since the shares do not move out of the demat account, the client can get the dividend directly in their primary bank account.
- Rights Issue: The rights entitlement benefit goes to the owner of the demat account where the stocks are held on the record date. In case you’d like to apply for the rights issue, you can do so without unpledging the shares. Because the shares are in your demat account only and are just marked as pledged (lien).
The Highlights of the MAS Product –
- Trade with Margin against shares with Zero Cash Balance in the Equity Derivatives and Currency derivatives segments (Both Intraday and Positional Trades) and also in the Cash Market segment (via Bracket Order and Cover Orders)
- No requirement to maintain 50-50 cash collateral ratios while initiating trades.
- The pledging charges have been reduced from Rs.60 to Rs.15 per scrip. .
How to pledge the shares for margin?
The request for share pledging has to be placed through BOX. All pledge requests received till 4.00 pm on trading days will be processed the same day and the benefit will be available for trading the next trading day. Any requests received after that will be processed on the next working day.
How to un-pledge the shares?
The shares given for pledging could be un-pledged from BOX. All unpledge requests received till 2.00 pm on trading days will be processed the same day and will be transferred to your holdings within a day. Any requests received after that will be processed on the next working day.
However if you have used margin given against your pledged shares or if there is ledger debit in your account, then the unpledge request will be rejected.
Pledging and Un-pledging request received on Saturday before 12.00 pm will be processed on the same day and the benefit will be available for trading the next trading day.
Where to view pledged shares benefit in the trading terminal?
Pledged shares benefit could be viewed in the Trading Balance or Funds section in the trading applications.
We are confident that it will benefit you with trading. We will continue to add new features to this as we go forward. We hope you find this information useful. Please feel free to post your queries/suggestions in the comments section below and we shall make sure that they are answered at the earliest.