SEBI committee has approved the proposal to reduce margin on cash transactions. This will promote cash transactions in the market. Sources having knowledge of this matter said that now SEBI has to take the final decision in this matter.
SEBI will also review the existing system
“The panel has given green signal to the proposal to reduce margins in the cash segment. It has also agreed to a review of the existing system,” a source said. The panel advised collecting the right margin to cover the risk well. However, the panel says that it should not be less than 12.5 percent. Now SEBI will take the final decision on this issue.
Meaning of VaR and ELM Margin
Currently, Value at Risk (VaR) and Extreme Loss Margin (ELM) for most stocks are between 12.5 to 20 percent. VaR margin is applied to cover the maximum possible loss due to market fluctuations. Similarly, ELM is the additional margin that exchanges charge over and above the normal margin.
SEBI will take opinion of parties related to the matter
Another source said, “SEBI will have to further test the data in this regard. After that, it will take the final decision after taking the opinion of clearing corporations, exchanges and other parties.” Margin reduces the risk in the system. Margin helps cover losses if the client fails to make payment or provide the shares sold.
SEBI’s focus on increasing volume in cash market
SEBI’s focus is on increasing the volume in the cash market. Trading volumes in the cash segment have doubled in the last three years. But, this has grown much less than the volume of the equity derivatives segment. SEBI Chairman Tuhin Kant Pandey has many times stressed on increasing the volume in the cash market.
Average daily turnover in FY25 Rs 1,20,782 crore
According to SEBI data, the average daily turnover in the cash market was Rs 39,148 crore in FY20. This increased to Rs 66,007 crore in FY21. It increased to Rs 72,368 crore in FY22. It declined to Rs 57,666 crore in FY23. It reached Rs 87,978 crore in FY24. It jumped to Rs 1,20,782 crore in FY25. This data may increase further in this financial year.
SEBI got many suggestions to increase volume in cash market
SEBI has received several suggestions to increase volumes in the equity cash market. Sources said this includes proposals to strengthen the stock lending and borrowing framework, increase participation in ETFs and eliminate or reduce ACTT in intra-day cash market trades. SEBI has started discussions to popularize the Stock Lending and Borrowing Mechanism (SLBM). A working group is considering this issue. There was no response to the email sent to SEBI regarding this.