Margin Shortfall Penalty Meaning, Importance & How to Avoid It

What is the margin shortfall penalty?

Margin shortfall Penalty is applied for all positions without sufficient margins as per SEBI Regulations. The rules require latest SPAN & Exposure or stock physical delivery margins to be available in client’s derivatives allocation at all points of time. 

Margin shortfall due to any reason including increasing margins by exchanges, marked to market losses, or removal of hedge Penalty is applied as a percentage of the Shortfall Amount which is prescribed by the exchange.

What are the different types of margin shortfall penalties?

EOD & Peak Margin shortfall are the two types of margin shortfall penalties.

Why does margin increases after client takes the position?

Margin requirements increase either due to 

1. Increase of SPAN margin by Exchange during the day or 

2. When client squares off one leg from spread/ hedge position (causing the unhedged leg’s margin requirement to increase). 

3. Market to marked losses leading to shortfall of margins 

How is margin shortfall monitored during intraday trading?

During the day, exchange takes minimum of 4 snapshots of the client’s positions to know the intraday margin requirements. Highest margin requirement across these 4 snapshots is considered to be client’s peak intraday margin requirement.

Any shortfall in the collection of the highest Peak margin obligations shall be considered for levying of the Peak margin shortfall penalty as per the exchange framework. 

FAQs

What happens if there is a margin shortfall overnight?

After the market closes, clients need to maintain EOD or End of the Day margin SPAN + ELM for open positions, and it will be compared with the latest exchange margin. Any shortfall with respect to exchange requirement in client’s margin availability is considered for EOD margin shortfall penalty.

What is the margin shortfall penalty structure?

The following penalty shall be levied in case of short reporting by trading/clearing member per instance for EOD or Peak margin.

Who charges the margin shortfall penalty?

The penalty is charged by the Exchanges and is levied as a percentage of the shortfall amount

Is GST applicable on margin shortfall penalties?

Yes, GST is applicable on the penalty and is added to the penalty amount. The overall amount post addition of GST is deducted from the account. The current rate stands at 18%.

How EOD margin shortfall is communicated with ICICI Direct clients?

Client can see Margin Shortfall or Excess Calculator facility on the FNO limit section for an existing open position to check PEAK & EOD margin shortages

Below EOD margin statement sent by ICICI Direct on daily basis

SMS communication: -

For EOD:-

After markets closed at 3.30 PM ICICIdirect will send SMS to the client about 4 PM to 6 PM & inform them about the provisional End of Day Margin shortfall amount. Before 10 PM client can add funds in F&O modify allocation section to avoid penalty on the shortfall. This is a provisional amount and is subject to change by 9:30 PM.

For Peak :-

After markets closed at 3.30 PM ICICIdirect will send SMS to the client at 4 PM & inform them about the Peak Margin shortfall amount. Before 5 PM client can add funds in “Add Margin” tab in the open position to avoid penalty on the shortfall.

When is EOD or Peak margin penalty collected by ICICI Direct from clients?

Once the exchange gives details about EOD & Peak margin shortfall penalty on T+6th day, then clients will be updated on the amount that has been charged from their account.

Where can I view the penalty amounts charged to me?

You can view the penalty charged to you under the Debit/Credit Note under the Settings section of the Website. Furthermore, this information is also updated in your bank account.

I am not able to check for which contract the Margin penalty has been charged?

The penalty is applied for the overall positions of your F&O contracts, it is not possible to check contract wise.

What will happen when every SPAN file is updated by exchange?

After every SPAN file is updated by the exchange, ICICIdirect will attempt to block additional margin from your FNO free limits if the SPAN margin increases or will release limits if SPAN Margin decreases.

If the client sees a Margin shortfall in the Shortfall or Excess Margin tab?

If the client sees a Margin shortfall, then needs to add margin in any open position.

How can I avoid the penalty?

To avoid the penalty, you can ensure that sufficient limits are available in your account in case of any increased requirement for margin by the exchange. ICICIdirect allows margins to be brought in by Cash or Shares as Margin for F&O Contracts. Squared off hedged position simultaneously. Check Shortfall or Excess Margin after placing order or squared off every time.