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What is margin penalty and how does it work?

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:
Short collection for each client
Penalty percentage
(< Rs 1 lakh) And (< 10% of applicable margin)
(>= Rs 1 lakh) Or (>= 10% of applicable margin) 1.0%
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.

Learn more about margin penalties on the NSE website .

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 non-upfront shortfall ( i,e MTM shortfall / additional margin shortfall / physical delivery margin short fall) amount and is posted in your ledger with the narration "Being CFX/F&O/MCX/Equity Margin Penalty Charges for the Trade Date".

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

Please read this post for a detailed explanation of what margin penalties are and why they are charged.