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What is Margin shortfall penalty and how do you 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 types of the 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 it monitored Intraday?

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. 

What happens 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 a penalty structure?

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

If short/non-collection of

Penalty percentage

Margins is less than 1 lakh or less than 10% of the applicable margin

0.5%.

Margins is greater than 1 lakh or greater than 10% of applicable margin

1%

Margins for a client continues for more than 3 consecutive days

5%

Margins for a client takes place for more than 5 days in month.

5% each day

Who charges the penalty?

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

Do I have to pay GST on the penalty?

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 ICICIdirect 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 FNO 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 ICICIdirect 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.

Disclaimer – ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. I-Sec is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. AMFI Regn. No.: ARN-0845. PFRDA registration numbers:  POP no -05092018. I-Sec acts as a Composite Corporate agent having registration number –CA0113. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The non-broking products / services like Mutual Funds, Insurance, FD/ Bonds, loans, PMS, Tax, Elocker, NPS, IPO, Research, Financial Learning, Investment Advisory etc. are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism.

One Click Portfolio, Premium Portfolio and Golden Stock Portfolio related services are offered under Research Analyst license of I-Sec. Any complaint / dispute pertaining to the same would not be entertained by Stock Exchanges.

Global Investment Platform is offered by ICICI Securities in collaboration with interactive brokers. Any complaint / dispute pertaining to the same would not be entertained by Stock Exchanges. Involvement of ICICI Securities Ltd. is restricted to Referral Only. ICICI Securities Ltd. does not offer this product directly to customers.  Client’s details will be shared with third party stock broker (Interactive Brokers Group, Inc.) with expressed consent from clients.  All dealings including KYC will be executed by third party stock broker (Interactive Brokers Group, Inc.) directly with client and ICICI Securities Ltd. will not incur any personal financial liability.

The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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