Regulators levy various Penalties when client trades do not comply with laid down regulations. In this article we try to explain various scenarios where penalty can be levied to your account and the quantum of penalty. You need to exercise due diligence while trading so as to avoid these penalties

Margin Shortfall Penalty

As per SEBI regulations, margin shortfall penalty is levied on trades performed without sufficient margin ( SPAN & Exposure for F&O and VAR+ELM+Adhoc for equity), net buy premium, physical delivery margins and marked to market losses (if applicable) as prescribed by the exchange.

The penalty levied in case of shortfall in the margin for F&O positions or equity trades:

If the short collection continues for more than 3 consecutive days, a penalty of 5% is applied on the shortfall for each subsequent instance of short collection. If there are more than 5 instances of short collection in a calendar month, then penalty at the rate of 5% is charged for every further instance of shortfall.

For MCX, if the margin shortage is reported for a client 3 times or more during a month, i.e., either in consecutive instances or in 3 different instances, the penalty would be 5% of the shortfall from the 4th instance of the shortfall.

Note: GST at applicable rates (currently, 18%) is levied on the penalty amount.

In case you incur a margin penalty, the cut-off/ due date for reporting margin is T+5 days, so we post the entry on your ledger once we get the penalty file from the exchange i.e on T+6 day. The penalty is applied as a percentage of the shortfall amount. 

Check our FAQthat explains how Margin shortfall can arise in Hedged Trades. 

Check out this page on the NSE and MCX for more information.

Trade Code Modifications

For any kind of modifications made in the client codes there is a penalty levied by the exchange. For number of modifications <5%, the penalty is 1% penalty of the value of Trade and if the total numbers of modifications are >5%, the penalty is 2% of the value of Trade. These penalties are debited to the particular client account where the code modifications are made.

Auction Penalties

If you sell shares which are not in your Demat Account, the transaction results in Short Delivery and further goes into Exchange Auction. Ideally you would not want to sell shares which are not in your Demat Account. Here are some scenarios in which you can get into such a situation:

When do a BTST (Buy Today Sell Tomorrow), your sell transaction could result in Short delivery if you the shares bought by you the previous day is not delivered by the Exchange

When sell shares using NRML Margin with an intention of buying back before the close of the Market and end up not closing the position. This could be because you forgot to close the position or it could be because the Stock price has hit the upper circuit.  Note that if you had sold using MIS product, we take best efforts to close the position 30 minutes before the close of the market. 

Here is what happens in your account:

T+1 Day : The Base capital will be blocked to the tune of 150% of the Sales value of stocks sold without having them in Demat account.

T+1 Day : Provisional Debit entry to the tune of 150% of the Sale value (Sale Value + 50% of Sale Value) will be passed in the ledger with the narration reading as " AUCTION ADDBACK FOR SHORT-DELIVERY " 

T+2  Day: The Provisional Debit entry will be reversed and the actual Auction Obligation received from exchange will be debited to the account. Also an auction penalty of 1% of the Auction Obligation value will be debited in the ledger

How is Auction Obligation calculated: The auction price is taken at the lowest price offered in the Auction. The highest price would be not more than 20% and not less than 20% of the closing price of the T+1 day i.e. the previous day prior to settlement day.