India may be well and truly shifting to a less speculative form of trading from August 01 onwards. In fact, August 01 could see the first step towards ushering in 100% upfront margins to be collected by brokers. Effective August 2020 brokers will have to collect 100% cash margins upfront. Penalties will be imposed in phases starting from Dec-20

From Aug-21, full penalty on short margins will kick in for brokers. That means, if any client has short margins on the long side or on the short side, the penalty will be imposed on the broker executing the trade. While full upfront margin collection is already prevalent in F&O (SPAN + Exposure), now cash trades also attract 100% (VAR + ELM) margins.

Why is this margin imposition relevant to traders? Currently, if the (VAR+ELM) is 20% for RIL, then technically leverage for intraday trading is 5 times. However, for specific orders like cover orders, bracket orders and other MIS orders, the leverage can go as high as 15-20 times. Effective August 2020, brokers cannot give additional leverage beyond the margins.

Brokers, therefore, must stick to this rule of collecting full margins upfront and only giving that much leverage. This rule will not only apply to buy trades but also to sell trades where margins have to be in cash or early stock pay-in. Brokers will have 4 months to adapt and from Dec-20, the penalties will set in phases and full penalty will be imposed from Aug-21.