SEBI has come up with the new margin framework for derivatives to keep up pace with the changing market dynamics and to bring more efficiency in the risk management framework. This new framework shall help in margin reduction for hedged contracts.
The change in margin framework shall be effective from 1st June, 2020 as per the SEBI circular.
What will the new margin framework mean for you?
For a better understanding of the same we have taken the below scenarios with examples
- Naked (unhedged) positions: As per our calculations margin may go up by 11% – 25%. Examples of such positions would be
- Buy Index futures or stock futures
- Sell Index futures or stock futures
- Write Call options
- Write Put options
- Hedged positions: Since the margins will be risk based, margins in case of hedged positions will go down depending on the hedging. Few examples of such positions are as below
- Call sell and Call buy
- Put write and Put buy
- Future long and Put buy
- Future Short and Call buy etc
- Margins will remain the same in case of Options buy
- There shall be no change in margins for MCX contracts
- You may also use What If Analysis option available in ‘NEST Trader desktop application > Tools’ to know what shall be the margins required for your desired positions
- In case you square off the positions that are hedged then that might result in higher margin requirement for existing positions. This may lead to squaring off your position by us as per our Risk Management Policy