Stock brokers' association the Association of National Exchanges Members of India (Anmi) has urged markets regulator Sebi to reconsider the proposed 100 per cent levy on intra-day trade peak margins, as it is 300 per cent of what should have been the actual levy.

“There is a great disconnect between what is being collected from clients and what needs to be collected vis-a-vis the attendant risks arising in intraday trades,” wrote Amni in a letter to Sebi.

It, however, reiterated that they are not against the collection of intraday margin levied on clients nor the levy of full margin on the clearing member irrespective of the nature of the trade.

Anmi pointed out that the rate of overnight margins, levied on intraday trades are almost 3.33 times more than what is warranted based on the risks of the trade. The ideal margin based on the attendant risks ideally should not exceed 33.33 per cent of the SPAN (standard portfolio analysis of risks) margin.

Also, nowhere in the world, clients are required to pay upfront peak margins.

Open interest in Nifty, being an Indian stock product, is more in Singapore compared to India. Indian markets are already at a disadvantage compared to SGX in terms of margins, time of trading, transaction cost, and taxation. Any further unwarranted restrictions will result in the export of business from India to overseas markets, the association said.

The spike in peak margin will bring change in market behaviour by shifting from future to option buying. It would also imply prolonged carry forward of loss-making trades, giving a false sense of security.

Anmi's concern over the peak margin issues rises as the deadline for the increase of the current margin of 50 per cent to 75 per cent from June 1, 2021, is closing in.

“Spike in peak margin will bring a shift in the mindset of people gravitating more towards options trading and moving away from stock /index futures and stock options,” said Anmi.

Due to the shift, hedging opportunities have seen a dip due to lower volumes in the capital market and commodity markets have been greatly impacted.

The brokers' association suggested to Sebi to bring the peak margin back within the band of 25 per cent to 33.33 per cent from the current rate of 50 per cent.

"We believe that the change will be a major boost for the industry in the current scenario," it said.

Anmi had requested for an urgent virtual meeting (keeping in mind pandemic conditions) with policymakers concerned in Sebi to discuss the submission at length.