Cash Market Transaction Policy Changed – SEBI

The Securities and Exchange Board of India (SEBI) is the Government-owned organization that acts as a regulator of the securities and commodity market in India. SEBI has announced the change in rule for the cash market transaction which is in effect from 1-Aug-2020. This change will have a major impact on retail investors. So let’s see what change is announced and how will it have an impact.

Below are the changes in the Cash Market Transaction Policy

1. The client/trader has to pay upfront margin for all the market transactions.
2. The trader cannot use proceed from selling shares to buy another share on the same day.
3. The client/trader will have to wait for T+2 days to make use of the margin.
4. Proceeds of a sale cannot be used even if the share is delivered earlier.

How will it Impact the retail traders?

To understand the impact, let’s take an example. Assume, you have a margin of 10000 INR and you would be planning to use it for intraday trading. You bought the shares of “XYZ” and now you are exhausted with your margin. As soon as you invested you observe that the market is going down, so you would think to exit the current position and make an entry at a lower point with the returned margin. But after the changes in policy, once you exit the position, the cash margin will be added to your funds in T+2 days.

Now if you have to make the entry again, you will have to invest a fresh margin. So the trades will become more capital intensive which will not be feasible for the majority of the investor. This policy change will also impact the Buy Today Sell Tomorrow or Sell today Buy Tommorw type of trading methods.

Another major change that SEBI is planning which will have a major impact on the brokers. SEBI may soon allow investors to trade directly on the exchanges without any broker in between. To this, the Co-Founder of Zerodha responded the below clearly showing dissatisfaction.
“Can this be offered to retail without a broker? Yeah, but retail investors use a broker for the platform (UI, UX, different order types, reporting, etc) on which they trade, DMA is not suitable. The biggest task for a broker is handling customer queries, complaints, etc. The industry has tens of thousands of employees for this. Can exchanges take over this and also act as a regulator to regulate itself when it comes to customer grievances? Maybe not,”

So what are your views on these changes? Are you happy with these changes or these are concerning you?