Peak margin

Before 2020, brokers reported client margins at end of day only. A client could take large positions during the day, square them off before the close, and never have the margin for them checked. The workbook's illustration: EOD margin required Rs 1 lakh, but the broker let the client maintain only Rs 30,000 through a day in which far bigger positions were taken — excessive intraday leverage, dangerous on volatile days.

Peak margin ends that. The clearing corporation takes snapshots of each client's margin requirement during the day, and the broker must show it had collected enough margin at the peak as well as at the close.

The rule (SEBI circular of 20 July 2020, Chapter 7, section 7.6):

• Clearing corporations send a minimum of 4 snapshots of client-wise margin requirement to TMs / CMs.
• The member reports margin collected from each client at EOD and the peak margin collected during the day.
• Two comparisons are made: (a) EOD obligation versus EOD margin available; (b) peak obligation across snapshots versus peak margin available.
• The broker pays a penalty on the shortfall — the higher of (a) or (b).

The softening. The rules were to be phased in. After representations from market participants:

SEBI clarified that these changes apply only to verifying upfront collection from clients. The margins the clearing corporation collects continue to be updated intraday and at EOD.

1. The problem peak margin solved (the workbook's figures). A client's EOD derivatives position needs Rs 1,00,000 of initial plus exposure margin. During the day the client traded far larger positions and squared them off, while the broker let him maintain only Rs 30,000.

EOD check alone:   obligation 1,00,000 → looks fine if collected at close
Intraday reality:  margin held 30,000 against a much higher requirement

Under the peak margin regime, a snapshot during those large positions would catch the shortfall, and the broker would be penalised on the higher of the EOD and peak shortfalls.

2. The BOD fix (the workbook's Bank Nifty weekly options example). At the start of the day the requirement is Rs 10,000. The trader deposits Rs 11,000 and trades.

BOD requirement      = Rs 10,000
Margin deposited     = Rs 11,000
Intraday requirement rises with volatility to Rs 12,000
Shortfall at snapshot (earlier rules) = 12,000 − 11,000 = Rs 1,000

Under the earlier peak margin rules, depending on when the snapshot fell, a short-margin penalty could be charged. From 1 August 2022, the Rs 10,000 BOD requirement applies throughout the day for this check, so Rs 11,000 is sufficient and no penalty arises.

Chapter 7, section 7.6, has a full sub-section on peak margin obligation: the July 2020 circular, four snapshots, the higher-of-two penalty rule, the May 2022 and February 2023 BOD clarifications and the August 2022 example. Expect the number of snapshots, the "higher of" rule, and what BOD parameters changed.

• Minimum 4 snapshots, taken by the clearing corporation.
• Penalty on the higher of the EOD shortfall and the peak shortfall — not the sum, not the lower.
• BOD parameters apply only to verifying client margin collection. The clearing corporation's own margin collection is still updated intraday and at EOD.
• May 2022 fixed BOD parameters for intraday snapshots; February 2023 extended them to EOD collection.
• Peak margin is a reporting and penalty regime for brokers, not a new type of margin the exchange charges on positions.