Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Interesting Articles

| More

Decoding: Pledging of shares and upfront margins in the cash market!

Posted On: 2020-09-17 15:05:04 (Time Zone: IST)

The recent SEBI guidelines issued on pledging of shares and upfront margin requirements are path-breaking changes in the Capital Markets - for investors these are exciting times ahead!

Pledging of shares has been made mandatory in the capital markets effective 1st of September 2020. Investors have been grappling with the significance of this move by the regulator, wondering what it means for them and how it will work.

Vinay Punjabi of Ventura Securities decodes this new mechanism of margining.

What is Pledging of Shares?

A pledge involves creating a lien on the stocks you hold in your demat account in favour of your broker. So, for instance, if you have 200 shares of Coal India in your demat account, you can create a partial or full pledge in favour of your broker. Based on this pledge, the broker extends limits for trading.

Why is it the new buzz word?

Prior to this mandate, stockbrokers offered their clients trading limits based on their demat account holdings, in addition to their trading account cash balances. Effectively, the broker considered these as collateral for margins, since they had the right to swipe shares from the clients' demat accounts, if necessary. This right was based on a POA signed by the client at the time of account opening.

The regulator considered this mechanism risky and has hence instituted the system of pledging of shares as a safety net for investors. Under the new system, the pledging process is initiated by the client via his broker and executed by the depositories (NSDL/CDSL) and the investor must confirm with OTP authentication.

What are upfront margins?

The regulator has made it compulsory for investors to maintain a minimum margin of 20% before a trade is executed. Normally, the settlement of the trade is on a T+2 basis (2 days after the trading day). So, now, if you wish to buy stocks worth Rs 50,000, a compulsory margin of Rs 10,000 is necessary, even if you sell the same stock within the next two days.

There is, however, some relaxation in margins for shares sold and early pay-ins to the exchange on the same day.

How do these changes impact the trading ecosystem?

On the upside...

1) Shares continue to reside in the clients' demat account, unless sold.

2) As long as clients have stocks in their demat account, they have access to margins via pledge.

3) The whole process of pledging is fully digital and seamless.

4) The investors continue to be eligible for all corporate actions, like dividends, etc. accruing on their pledged stocks as the stocks remain in their demat account.

On the downside...

Except for initial teething issues in implementation till the system stabilizes there is no disadvantage. In fact, this can be a bedrock for growth of the capital markets and its efficient functioning.

Every significant transition heralds a new beginning and the hope of better outcomes. Let us look forward to a safer and more transparent stock trading ecosystem for all stakeholders.

Click here to send ur comments or to

Other Headlines:

Electricity (Amendment) Bill 2021 - A Review - Balaji Vaidyanath and Devang Patel

Tips to save Income tax in FY 2021-22

NPS Growing at Decent Pace, Performed Well Even During Pandemic Period: PFRDA Chairman

The Yamuna Syndicate Limited acquires 20,000 shares of ISGEC Heavy Engineering Ltd from open market

SIDBI joins hands with Govt. of Rajasthan for the development of MSME ecosystem in the State

Are promoters using rights issue to increase their stake in the company?

All you want to know about Rights Entitlement

45% of the customers have taken moratorium PAN India; more observed in the northern region of the country: Finway

DISCOM dues balloon to ₹1.199 trillion

TNPL recommends dividend of Rs. 6 - Dividend Yield @ 5.45%

HUDCO - Rs. 2.35 dividend recommended - Dividend Yield @ 7.01%

PTC India Ltd - Rs. 5.50 dividend recommended - Dividend Yield @ 11.46%

PNB Gilts Ltd - Rs. 3 dividend recommended - Dividend Yield @ 8.57%

How to apply for Rights Issue of Arvind Fashions Limited?

How to apply for Rights Issue of Aditya Birla Fashion and Retail Limited?

An insight on Aarti Surfactants Limited

Covid-19 and its impact on businesses

Nifty Gained 8% in the June Series, Bank Nifty Surged 12%-Highest Since March 19 - HDFC Securities

IMF Growth Revision for India - Acuité Ratings & Research

Co-operative Banks - RBI Supervision - Acuité Ratings & Research

HDFC Securities views on relaxations announced by SEBI

India can reduce China trade deficit by over $8 billion in FY21-22 - Acuité Ratings & Research

How can investors preserve their wealth during times of crisis

JM Financial Yield Enhancer (Distressed Opportunity) Fund I raises Rs.160 crore in its first close

Samco Securities launches BTPT - Buy Today, Pay In Two days for Investors Buying Stocks

No data breach of BHIM app: Report

India's sovereign rating downgrade by Moody's - Acuité Ratings & Research

Banking Sector Credit Trends - Unusual trends - HDFC Securities

Rollover Report for May - June 2020: Angel Broking

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on Q4 GDP

Mr. Dhiraj Relli views on GDP Numbers - HDFC Securities

Banking Sector Update - NIM compression on the cards - HDFC Securities

May series ends with a bang: Angel Broking

May 2020 F&O Series Expiry - Mr. Nandish Shah, Technical Research Analyst, HDFC Securities

Views on Impact of Locusts Attack on Agriculture - Acuité Ratings & Research

ICAI establishes Center for Audit Quality

Bharti Telecom raised over Rs. 8433 crores through Accelerated Book-build offering of equity shares of Bharti Airtel

SATYA MicroCapital raises INR 105 crore equity funding from Japan-based Gojo & Company Inc.

Mr. Rajnish Kumar, Chairman, SBI & IBA on the announcements made by RBI today

Views of Mr. Umesh Revankar, MD and CEO, Shriram Transport Finance on RBI announcement

Views of Mr. George Alexander Muthoot, MD, Muthoot Finance on RBI announcement today

Views of Ms. Anagha Deodhar - Economist, ICICI Securities on the RBI announcement today

Views on RBI Policy announcement today - Federal Bank

RBI Monetary Policy (May 2020) by Shanti Ekambaram, Group President - Consumer Banking, Kotak Mahindra Bank

Religare Finvest Ltd. on today's monetary policy by RBI

RBI monetary policy announcement - Mr. Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd

RBI's proactive measure will help revive economy: Dr.Niranjan Hiranandani

Mr. Dhiraj Relli views on today's announcement made by RBI

Views of Mr. R K Gurumurthy, Head - Treasury, Lakshmi Vilas Bank on the RBI announcement today

Suvodeep Rakshit, Vice President & Sr. Economist, Kotak Institutional Equities on RBI announcement

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020