Margin Pledge System by Zerodha

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To reduce the risk on the financial market and to curb the practice of excessive leverage, SEBI has come up with new margin norms. The major changes that are taking place from Sept 1, 2020, are:

  • The method of pledging stocks and,
  • The upfront margin requirement for Stocks and F&O on BSE, NSE, and MCX. 

New pledging system

Till now, whenever you pledge your stocks as collateral securities, they move from your Demat account to the broker and in turn to the clearing corporation. But from Sept 1, 2020, the stock will continue to remain in your Demat account and can be directly pledged to the clearing corporation. For this, the broker has to open a separate demat account labeling ‘TMCM – Client Securities Margin Pledge Account’ (TMCM stands for Trading Member Clearing Member). Then the broker can re-pledges these securities in favor of the Clearing Corporation and obtains margins. 

Benefits of new Pledging System

  • No securities misuse: As the securities will not leave the demat account of investors, there are less chances of it to be misused. Also, one client’s stocks cannot be pledged to provide margin to another client.
  • Pledge all approved securities: Zerodha and other brokers do not accept the pledge of all securities which are allowed by exchanges. But from Sept 01, 2020, all the instruments held in the client’s account will be accepted for the pledge.
  • Facility to sell pledged stocks: In the new Pledging policy, investors are allowed to sell pledged stocks without having to request for unpledged and wait until they are received to your demat account. This will cover the risk from market movements in the stocks you’ve pledged.
  • Corporate actions allowed: In current policy, the stocks are held by brokers and they are the recipient of all cash and non-cash corporate actions like dividends, bonus, rights, etc. But from now, clients held all the securities and they will receive dividends, bonus, rights, etc. directly from the company. Earlier, the broker is required to voluntarily transfer these benefits to the investor, but many investors miss out on claiming such credits when brokers don’t transfer, so this problem will not occur in the new pledging policy. 

How Will Zerodha Process?

Zerodha has kept the process unchanged on a large basis but has added a few more steps in which the client is required to authorize the pledge by entering an OTP on CDSL’s website, just like the TPIN based pre-authorization for selling stocks. The investors will be sent a link on their emails where they need to enter OTP and authorize the pledge. The full process is explained below:

  • Log into Zerodha Console.
  • Go to the holdings page, and here you will see the stocks which can be pledged.
  • Select the stock you wish to pledge, enter the stock quantity, and click on the pledge.
  • You will receive an email from CDSL on your registered email ID with a link to approve the pledge.
  • You need to visit the link. An OTP will generate on your registered mobile number or email. Enter the OTP on the CDSL page to approve the pledge.
  • After the pledge is approved, margins will be provided against the pledged stock from T+1. After the availability of APIs, Zerodha will work at providing near real-time margins against the pledge.
  • To unpledge, simply visit the holdings page and request an unpledged. Within hours, the stocks will be marked unpledged and will become free securities in the demat. 

Fee of pledging

The fee of pledging will remain the same, which means Rs 30 plus GST per pledge. This is because there’s a cost levied by the depository to create the pledge and re-pledge.

Some other bunch of changes taking place after levying new margin policy is:

Sale proceeds from holdings can be used to take new positions

The company will debit shares as soon as you sell them from your demat account and make an early Payin to the exchange on the day it is sold. By this, you can use the full value of sale proceeds from your stock holdings as soon as you exit them to enter new positions in stocks and F&O.

Sale proceeds from T1 holdings

You can sell the T1 holdings (stocks bought the previous day and yet to be credited to your Demat) and use the entire sale proceeds to hold a new position. In F&O, you will be able to use only 60% of the selling value.

Intraday profits can be used for new positions only after settling

Currently, traders can use intraday realized profits for taking new positions on the same trading day. But from now onwards, traders will be able to use it only after 2 days in case of equity/stocks and the next day in case of F&O.

Option sell credit can be used only to buy options on the same trading day

When you will exit option positions, and enter new options, the credit of option premium can be used for only new long/buy option trades on the same trading day and only within the same segment. Traders can use this credit for other types of trades only from the next trading day.

Last updated on 1st Sep 2020



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