Brokers tighten financing amid spike in volatility

livemint.com:

Mint has seen an email sent by Angel One to a client citing market volatility for virtually halting the facility. “Due to market volatility, there will be 100% margin for Margin Product effective 06-Aug-2024 till further notice to safeguard clients’ interest..." A company spokesperson declined to elaborate as the listed company is in a silent period until 9 August. MTF is an industrywide practice.

Shares worth ₹75,548.5 crore were financed by brokers as of 2 August, NSE data shows. A client, who puts up a margin of 20-40% , pays 12-18% interest to the broker to fund her shortfall. The tenor of the facility extends from a few weeks to a couple of months, say brokers.

Part of risk management, the margin paid is calculated as per a Sebi formula consisting of value at risk margin (VAR) plus three to five times the extreme loss margin (ELM) stipulated for each stock. VAR provides for a worst-case loss in a portfolio of assets if an unforeseen event occurs. ELM is an additional margin to provide for losses beyond those predicted by VAR.

Meanwhile, IIFL Finance has begun increasing margins in phases effective 1 August. A company spokesperson said that as per exchange directions in July, over a thousand stocks were to become ineligible for being pledged as margin effective 1 August. Also read | F&O trading: Do retail investors really need Sebi's big brother oversight? “Amid the rise in volatility, we have increased the margin on the ineligible stocks to 40% from 20% earlier to give clients with large positions time to substitute the collateral," the spokesperson said, adding that the shortfall is met by IIFL so that it can be placed with the exchange’s clearing corporation.