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Margin Shortfall Penalty

Margin Shortfall Penalty

Margin shortfall penalty will be levied by the exchanges when there is a margin shortfall on overnight positions held in the trading account without sufficient margin as prescribed by the exchange. This penalty is applicable only for overnight margin shortfall however it does not apply for intraday positions.

Margin shortfall is applicable to stock, commodity and currency exchanges (NSE, BSE, MCX, and MCX-SX). For more details about the prescribed margin required for Derivative future contracts please visit Daily Margin required for NSE Future contracts.

How the Margin Penalty is calculated

If the overnight margin is less than 1 lakh and the margin shortfall is less than 10% of applicable margin then, 0.5% of penalty is levied and in case if the margin exceeds 1 lakh or the margin shortfall exceeds 10% of applicable margin then, 1% margin is levied on the margin shortfall.

Short collection for each client Penalty percentage
(< Rs 1 lakh) And (< 10% of applicable margin) 0.5%
(= Rs 1 lakh) Or (= 10% of applicable margin) 1.0%

If the margin shortfall continues for more than 3 days then margin penalty of 5% will be levied every day beyond the third day of the shortfall. All the penalty amount collected as prescribed by the SEBI guidelines will be deposited to Investor protection fund by all the exchanges.

Let’s consider Mr. Ramakrishna (Positional trader) holds Rs.95,000/- cash in his trading account and carry forwarded 2 lots of Infosys Futures in which he requires a minimum margin of Rs.95,000/- as prescribed by the exchanges. However, due to volatility in the market his account got debited by Rs.5,000/- for his losses on the same day. As the margin, in this case, is less than 1 lakh and the margin shortfall is less than 10% of the applicable margin the penalty will be 0.5% of the margin shortfall i.e. penalty of Rs.25/- will be levied. The following table illustrates how margin penalty will be levied based on various margin shortfall conditions.

Day Infosys Future Margin Margin Shortfall Penalty
T+1 Rs95,000/- Rs5,000/- Rs25/- (0.5%)
T+2 Rs95,000/- Rs4,000/- Rs20/- (0.5%)
T+3 Rs95,000/- Rs10,000/- Rs100/- (1%)
T+4 Rs95,000/- Rs 8000/- Rs400/- (5%)
T+5 Rs95,000/- Rs 6000/- Rs 300/- (5%)

In the above table you can notice that on T+3 Day the margin shortfall continues to be at Rs 10,000/- which is more than 10% of required margin hence 1% of penalty on margin shortfall i.e. Rs.100 is imposed on the trading account. Moreover, if the shortfall continues for more than 3 days (T+4 onwards) then 5% penalty will be imposed as illustrated in the above table.

Exemption of Margin Shortfall penalty

If short collection of margin from clients is caused due to movement of 3% or more in the index (close to close value of Nifty/Sensex for all equity derivatives) and in the underlying currency pair (close to close settlement price of currency futures, in case of all currency derivatives) on a given day, (day T), then, the penalty for short collection shall be imposed only if the shortfall continues to T+2 day.

9 Comments

  1. How can I avoid margin penalty?

    Reply
    • Well, its simple, you need to maintain the Exchange specified Margin plus MTM loss on all Derivative open positions to avoid margin shortfall penalty.

      Reply
  2. Sir, Could you pls clarify this instance?
    If a client Has Rs.4 Lakh cash available in his account and takes 4 SHORT positions (Index Options) worth Rs. 5,50,000/- and his Margin short fall at 1,50,000/-.
    Now,(1) HOW LONG he can keep this Shortage without paying as this shortfall is getting reduced day by day..?
    (2) In case of non-payment, What will be the Penalty for this Shortage?
    (3) How this Margin is calculated for different strikes, any specified Ratio is there?
    Kindly clarify.

    Reply
  3. Do u need to pay GST also on Penalty?

    Reply
    • Yes.

      Reply
  4. Prateek Gupta – Please tell me rate of gst and share circular on mail id nitinjain144@gmail.com

    Reply
    • GST is charged at 18%. For more details you can refer the charges page.

      GST is applicable on service provided.

      Reply
  5. In case shares are given as margin, do you have any minimum of cash collateral to stock collateral ratio? If so, and on any day the cash collateral falls lesser than the stock collateral (even if overall margins are fulfilled through stock collateral), what are the charges?

    Reply
    • Ye we have a collateral to cash ratio of 80 : 20. Here 20% of cash is for MTM requirement. In case of negative cash margin we will square off the position and if Cash Margin is less than 20% then a charge of 18% interest p/a is applicable. To know more please reach us on +91-80-40204020.

      Reply

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