As per the SEBI’s norms, if you are taking any position in the derivatives segment then you have to maintain SPAN (Standard Portfolio Analysis of Risk) + ELM (Extreme Loss Margin) for your existing positions. If you fail to maintain this margin, then the exchange levies a penalty for the margin shortfall.
Margin shortfall can ensue under the following circumstances.
- If you have created a hedged position and you square off your long option position first, then the margin requirement will increase as futures and short option position require high margin without a hedge. A shortfall penalty is charged if you fail to maintain enough margin.
- Exchange revises margin 4 times intraday and once at the end of day to adjust for market movements and volatility. So even if you had enough margin at a particular time in day, for e.g. while creating your position, you might be reported under margin shortfall at another point on the same day. Or you may have enough margin the previous day, however, due to change in margin requirement your account might get into shortfall even if there is no change in the positions created by you.
- If you have a futures or short option position and you fail to cover MTM (Mark to Market) loss, then again, penalty will be charged on the shortfall amount. MTM loss reduces your available margin.
- In calendar spread strategy, if you have squared off one leg or it expires on expiry day, then margin requirement will increase in the second leg and your account would be liable for margin shortfall.
- In case you have a long option position in stocks that is in the money exchange charges delivery margin on such position 5 trading days before expiry. If such delivery margin is not maintained then too, it results in short reporting and penalties.