Growing Concerns among Broking and Retail Trading Community over SEBI Circular to Ban Intraday Leverage

Triventure Advisory

31st July 2020; Mumbai; India: The Securities and Exchange Board of India (SEBI) released its latest circular on July 20, 2020, aimed at banning the intraday leverage in a phased manner by December 1, 2020. According to the circular, traders and investors will now have to maintain upfront margin in their account to receive leverage from brokers. The retail trading and broking community has now raised their concerns and believe that the new rule will have a huge impact on the functioning of regular markets. The revised guidelines will severely limit intraday trading which contributes almost 90 per cent of the volume in exchange and has existed in India for decades. The move will diminish the liquidity, volumes and financial opportunities to thousands of people to a great extent.

“Financial market is the only sector that has been able to function since the lockdown began in India and provided numerous opportunities to regular people facing job losses survive in these difficult times. The new circular will have a great impact on the Derivatives markets as it will suck out the liquidity from the system, volumes will dry up to a great extent and will impact the livelihood of many retail traders. Moreover, once this circular is fully operational it will have a huge impact on the country’s financial position in terms of tax collection as there will be a huge drop in GST, STT, and Stamp duty revenues on derivatives trades. Many traders today clear NISM certifications which make them fully aware of the risk of intraday trading. Instead of enforcing a ban on intraday leverage, it should be left to the brokers’ discretion with minimum controls at the place. The penalty cannot be the way of doing business in a country like India where there is so less participation in capital markets”, says Mr Sahil Balani, Head- Research & Derivatives, Triventure Advisory Pvt Ltd.

With the country suffering from the pandemic and the fate of making a livelihood is at stake, many people have recently gathered hope from intraday trading and implementation of this circular will make it difficult for the whole trading community to explore any such opportunity. During this pandemic, it can be observed that many individuals including housewives are turning towards intraday trading for their livelihoods. If at all a comparison has to be made with other Countries, the margins that Exchanges charge are way too high than other exchanges globally. “We understand SEBI’s concern over the improper usage of client’s funds by brokers. It needs to be addressed by proper controls and reporting in place that the leverage which a trader utilizes is provided by his brokers own funds and that such funds are utilized on an intraday basis only. The brokers have deployed their RMS teams for monitoring the funds which are provided as leverage after due diligence”, adds Balani.

Based in Mumbai, Triventure Advisory Pvt Ltd is a sub-broker of Motilal Oswal Financial Services Ltd with a client base of over 700 spread across the country. Recently, Triventure Advisory was ranked amongst the top 20 franchisees of MOFSL and is well-known in futures and options segment.