Stock exchanges may call for early margin if sell-off intensifies

Stock exchanges may call for early margin funds if the sell-off in the market intensifies, sources told Moneycontrol. Global markets are in turmoil following the 1200-plus point fall in the Dow Jones on Monday. Asian markets are down 3-5 percent and Nifty futures on the Singapore Exchange are down around 330 points (3 percent), pointing to a similar slide in India when the market opens for trading.

Stock exchanges collect a margin on outstanding positions as a risk management measure. The amount varies depending on the risk perception of the exchange on a particular stock/derivative or on the market as a whole.

The stocks which have a history of sharp moves on either side are subject to higher margins compared to those which are comparatively more steady.

Ahead of the Budget, the stock exchanges had raised margin requirements by 18 to 20 percent on futures and options contracts.  This was done to curb excess leveraged positions in the market. Today exchanges may call for early margins from large brokers who have huge outstanding positions in the  market . An exchange official told Moneycontrol:  “We have been collecting adequate margins and so there is no fear of default by any broker. However, we may call early margin if we will see any major fall in the market”.

Brokers normally have to deposit margin money with the exchanges at 12 noon. In case the exchanges feel the market condition could worsen, they may call for margin funds ahead earlier than that.