New Delhi. If you trade in cash segment in the stock market, then good news is going to come for you. Stock market regulator SEBI is now preparing to reduce the margin imposed on cash trades, which means that now more shares can be bought and sold even with less capital. Your daily trading expenses will become lighter and market participation may increase. This possible relief from the regulator will not only save the pockets of small investors, but can also give a new impetus to the cash market.
According to an exclusive report by Moneycontrol, SEBI is considering reducing the margin in the cash segment. An important committee of SEBI has recently discussed this proposal with clearing corporations, brokers and other market participants. Although no final decision has been taken yet, the talks have now formally started.
What is margin and why is it discussed?
At present, generally around 20% margin has to be paid for trading in cash segment in the stock market. There are two charges involved:
- VaR (Value at Risk): It covers the potential loss caused by market fluctuations.
- ELM (Extreme Loss Margin): This is additional safety margin taken to cover losses in abnormal market conditions.
Market experts say that the actual risk on many stocks is low, yet 20% margin is charged on them. Many stocks fall in a category where the margin should be 15% or 25%, but they fall in a similar range. Therefore, the committee thinks that the margin structure should be made practical.
What does SEBI want?
The focus of SEBI is to strengthen the cash market and increase trading volume in it. Although the average daily volume of the cash market has doubled in the last 3 years, it is still very low compared to derivatives. On many occasions, SEBI Chairman Tushar Kanta Pandey has said that to strengthen the Indian capital market, it is necessary to expand the cash market.
How did cash market volume increase?
Financial Year 2019-20: Rs 39,148 crore
Financial Year 2020-21: Rs 66,007 crore
Financial Year 2021-22: Rs 72,368 crore
Financial Year 2022-23: Rs 57,666 crore
Financial Year 2023-24: Rs 87,978 crore
Financial Year 2024-25: Rs 1,20,782 crore
What will happen if margins are reduced?
- Trading will become cheaper for small investors. More shares can be bought and sold for less money.
- Volume will increase in the cash market. Due to low cost, more people will be motivated to trade.
- Risk management will not be affected. The committee clearly believes that only fair margin will be maintained so that security is maintained.
