Effective January 2020, a new set of margining rules will take effect as put out by SEBI. Broadly, the new rules are intended to market the markets safer for investors and to reduce the unnecessary speculation by small investors. Here are the highlights of the announcement made by SEBI and its implications.

· The regulator has tried to create a kind of barrier to investors to deal in direct equity and guide them towards the mutual funds route. The new guidelines for margin requirements will apply even for selling of shares. That means; even when you sell shares you have to keep a margin of 15-25% of the value of the sale as margin.

· How do investors avoid paying these margins on selling since these kinds of margins do not exist anywhere? The way out is for clients to ensure early pay-in. When clients sell shares, they are required to give the delivery to the broker by T+1 in the form of debit instruction slip. Either the debit instruction must be given on the same day via online POA or Trade Easy. In the absence of such same-day pay-in, sellers of shares will be required to deposit 15-25% margins.

· In terms of positioning, this will make it more convenient customers to have their broking and DP at the same broker so that early pay in is possible. Also, the margin will become too high if you have multiple brokers, so investors may be forced to stick to just one or at the most two brokers.

· The one big concern could be that for early pay-in, the clients will have to necessarily give POA to the broker to debit the demat account. But customers are quite wary of POA after the Karvy episode. The other option is to register for the online DP facility with NSDL and CDSL (Trade Easy and Easiest) so that debit instructions can be given online without giving POA to broker.

· However, this rule only applies to retail and HNI investors and institutional traders like FPIs and mutual funds are exempted from this rule.

In the short run, this is going to make life a tad difficult for the customers but in the long run it will make the markets more peaceful and less speculative. To that extent it should be positive.