NSE Collateral List : The National Stock Exchange ( NSE ), one the country’s leading stock exchanges, recently revised the criteria for securities eligible as collateral.
According to a list published by NSE, about 1,010 stocks will not be eligible for acceptance as collateral starting August 1.
What is Margin Trading Facility?
Margin Trading Facility (MTF) is a product approved by exchanges that allows you to buy stocks by paying only part of the total value.
This is where the Margin Trading Facility (MTF) steps in.
Written by : Sarmeeli Mallick Updated Jul 12, 2024 20:24 IST NSE New Circular: According to a list published by NSE, about 1,010 stocks will not be eligible for acceptance as collateral starting August 1.
NSE Collateral List : The National Stock Exchange ( NSE ), one the country’s leading stock exchanges, recently revised the criteria for securities eligible as collateral.
As per the latest criteria, 1,010 securities will not be accepted as collateral starting August 1, 2024. Adani Power , Yes Bank , Suzlon, Hudco, Bharat Dynamics, Bharti Hexacom, IRB Infrastructure, NBCC, Go Digit, Tata Investment, Paytm, and Inox Wind are among the stocks in the list, as per the Economic Times report.
The exchange said that NSE Clearing (NCL) will accept collateral only those securities that have been traded at least 99 per cent of the days over the previous 6 months and have an impact cost of up to 0.1 per cent for an order value of Rs 1 lakh.
According to a list published by NSE, about 1,010 stocks will not be eligible for acceptance as collateral starting August 1.
NCL will continue to provide valuation of such existing unapproved securities re-pledged with NCL as of July 31, 2024, after applying the haircut. This will allow clearing members to replace the existing unapproved securities, as per the ET report.
Accordingly from August 1, the applicable haircut is 40% or VAR (value at risk), whichever is higher. From September 1, the haircut will increase to 60%, 80% from October 1, and 100% from November 1, respectively.
Other stocks not eligible for collateral include - Jupiter Wagons, KIOCL, Jyoti CNC Automation, JBM Auto, Hatsun Agro Product, Tejas Networks and Swan Energy.
For understanding this, let us first read the concept of margin and margin trading facility (MTF) and the reason why investors pledge shares as collateral to secure their margin funding.
What is Margin Trading Facility?
Margin is the collateral that an investor has to deposit with their broker or exchange to cover the credit risk the holder poses for the broker or the exchange. An investor can create credit risk if they borrow cash from the broker to buy financial instruments, borrow financial instruments to sell them short, or enter into a derivative contract.
Buying on margin occurs when an investor buys an asset by borrowing the balance from a broker. Buying on margin refers to the initial payment made to the broker for the asset; the investor uses the marginable securities in their brokerage account as collateral, according to Investopedia.
Margin Trading Facility (MTF) is a product approved by exchanges that allows you to buy stocks by paying only part of the total value. The broker funds the remaining amount and charges interest on this loan, according to stock brokerage Groww’s website.
How does MTF work?
Assuming you have Rs 100 but want to buy shares worth Rs 500. This is where the Margin Trading Facility (MTF) steps in. Typically, you need to provide 20 per cent of Rs 500 as your initial investment, which amounts to Rs 100. Depending on the stock, this percentage can increase.
For our example, let’s take 20%. The broker then funds you the remaining Rs 400 (80 per cent of Rs 500).
With MTF, you can now purchase Rs 500 worth of shares with just Rs 100. It's important to note that the stocks must be verified (pledged with the broker) per SEBI guidelines to purchase under MTF, according to Groww’s website.
