What is a Daily Margin Statement?

Capital markets see a variety of investors every day, as it involves several asset classes and segments that cater to different investor types. An investor can choose to invest in the cash segment or derivatives, depending on personal preference. Most major trading segments come with the option of margin trading, which allows investors easy access to additional capital.

While most capital market investors prefer to use the margin facility by trading across multiple segments, it can be tricky to keep a close watch on their finances. With an objective to provide transparency and ease of tracking finances for investors, stockbrokers provide a daily margin statement. Let’s understand the concept of daily margin statements and how it can help capital market investors.

What is a daily margin statement?

The daily margin statement is a password protected document that informs an investor or trader about the available margin and its utilisation. It tells an investor:

1. How much free margin is available in his/her account and deficit
2. The possibility of new positions using the available margin that does not result in penalty

A daily margin statement must be in the format as prescribed by the Securities and Exchange Board of India. This is mainly for ensuring uniformity and easy readability. 

Investors can easily access a daily margin statement by providing their PAN number as password. Since each trade comes with a margin requirement, investors who trade on multiple exchanges can receive a combined daily margin statement from their broker.

What is contained in a daily margin statement?

The market regulator, SEBI, has mandated a specific format for the preparation and publishing of daily margin statements. Thus, stockbrokers have to compulsorily include certain details in this document. Some of them are listed below.

1. Funds: This section contains the closing account balance on a trading day. Since the data contained in this section is applicable for trades till 5pm, it does not consider post-market transactions.
2. Value of securities after haircut: This section includes the net value of securities post the applicable haircut. It tells investors how much margin they received after pledging holdings that are in turn withheld by the broker. The haircut is generally more than the VAR margin rate, which, in turn, is decided and modified by the broker as per their risk management policy.

What is VaR margin rate?

The VaR margin rate is a margin that helps brokers and exchanges gauge and cover against losses or value at risk from stock trading. This can be different for liquid and illiquid stocks. It is determined using parameters including confidence level, time horizon, and estimate of loss. For example, if a stock has a 10% VAR margin rate, it means that a 10% potential loss can occur in the value of the security.

3. Segment: Here, the information on the clearing corporation and market segment is included. Investors can cross-verify numbers from this section by clubbing all trades as per exchange or clearing corporation. It is also known as ICCLCM or Indian Clearing Corporation Limited (ICCL) – Cash Market.
4. Total margin: This is a total of funds and value of securities after haircut. It can be used by the investor as margin towards BUY/ SELL transactions.
5. Total upfront margin: This section contains information on total upfront margin that is reserved for all the yet-to-be-settled by the exchange trades. Both VaR and ELM are included in this.
6. MTM: All mark to market losses are contained in this section.
7. Days: This section tells about the margin status for:
   1. T day or trading day,
   2. T+1 day, and
   3. T+2 day.

Unless a trade is settled by the exchange, any margin requirement is considered valid.

8. Trade day: Trade day, as the name suggests, is the day of trading in a given segment. Since a margin statement is shared daily, this section will state the exact date of trade associated with the margin statement.
9. Total requirement: Here, an investor can see the total amount reserved by the exchange for his/her positions. This is shown separately for each trade segment.
10. Margin status: Here, one can see the balance amount available for entering into new positions on the upcoming trading day.
11. Consolidated Crystallized Obligation: The MTM margin that is required for all the trades that are not yet settled is shown in this section.

Understanding the concept of Margin

A margin can be either the rate that is stated by a stock exchange or a clearing house, or it can be the amount that an investor has from his/her broker for stock trading. As per SEBI norms, stockbrokers are required to collect three different margins from investors trading in the cash markets. These include:

1. Value at risk
2. Mark to market
3. Extreme loss margin

While all these three were required from derivative traders, this is a relatively new requirement for cash traders. Margin acts as an upfront amount that is collected from investors as a cushion for all buy/sell transactions that take place in the market. Failure to provide the required margin will result in cancellation of trades and also penalty. 

Due to the requirement of margin, SEBI has also mandated brokers to provide a margin statement to traders so that they are aware of their shortfalls and potential penalties while trading.

Conclusion

The daily margin report is a crucial document that offers clarity to investors on their daily finances. This facility is often used by traders to amplify their transactions. As margin trading has increased in popularity in the past few years, so has the demand and importance of daily margin statements.

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