1. Legal Basis

A. SEBI Circulars:

• SEBI/DNPD/Cir-38/2008 dated Aug 28, 2008 & Oct 15, 2008: Exposure margin shall be higher of 10% or 1.5 sigma of notional value for stock F&O.
• CIR/DNPD/7/2011 dated Aug 10, 2011: Short-collection / Non-collection of client margins - empowers exchanges to levy penalty.
• SEBI/HO/MRD2_DCAP/CIR/2021/0578 dated Dec 1, 2020: Introduction of Peak Margin in 4 phases.
• SEBI/HO/MRD2_DCAP/CIR/P/2022/65 dated May 10, 2023: Major change - Peak margin to be calculated on fixed Beginning of Day (BOD) parameters, not live SPAN file. From Aug 1, 2023, BOD margin includes all SPAN parameters plus Extreme Loss Margin.

B. Exchange Rule: Total margin = SPAN + Exposure + Additional/Ad-hoc margin. Mandatory collection before trade.

2. How Margin is Calculated in India

Step 1 - SPAN Margin:
Developed by CME. NSE Clearing publishes Risk Parameter File (RPF) 6 times a day. It takes 16 risk scenarios (price up/down 3 sigma, volatility up/down) and calculates worst loss. Covers 99% VaR. Changes daily.

Step 2 - Exposure Margin:
This is over and above SPAN to cover MTM gap risk.

As per latest framework:

• Index Futures / Short Index Options: 3% of notional (Some brokers show 2% as per older circular, but NSE now applies 3%)
• Stock Futures / Short Stock Options: Higher of 5% or 1.5 * Standard Deviation of daily log returns of notional value

So: Initial Margin = SPAN + Exposure

Example: NIFTY @ 25000, Lot 75
Notional = 18,75,000
SPAN = 12% = 2,25,000
Exposure = 3% = 56,250
Total to be blocked upfront = 2,81,250

If you pledge shares, haircut (20-50%) applies after SEBI Aug 2020 pledge-repledge mechanism.

Step 3 - Peak Margin Check:
NSE takes 4 random snapshots in a day. Your highest margin required across those 4 snapshots is your Peak obligation. Broker must have collected that peak at that time. Even if you closed position by EOD, if you were short in snapshot 2, penalty triggers.

Step 4 - MTM Margin: If you have MTM loss, it must be paid in cash on T+1 day. Cannot be paid via collateral.

3. What Changed After SEBI May 10, 2023 Circular

Before: Margin required intraday was fluctuating because SPAN file changes.
After: Peak margin for intraday snapshots is calculated on fixed BOD margin parameters. This gives clarity and reduces intraday volatility margin spikes.

BOD margin = SPAN parameters as at market open + ELM requirements.

4. Case Laws - The Core Jurisprudence

Case Law 1: Grishma Securities Pvt Ltd vs SEBI - SAT Order Oct 28, 2013 in Appeal No.151/2013
SAT observed: "various circulars issued by SEBI from time to time have led to a well developed margining system... The collection of margins as a regulatory requirement prescribed by SEBI is a pre-requisite". This established that margin collection is not directory, it is a pre-condition to trade.

Case Law 2: SMC Global Securities Ltd vs SEBI - SooperKanoon Citation 1149997
SMC argued SEBI circular dated Aug 10, 2011 only empowers exchanges, SEBI cannot penalize separately. SAT rejected: "stock exchanges have been empowered to penalize brokers regarding infractions committed with respect to margin collection... ultimate power in respect of all matters related to capital market rests with SEBI". Hence dual penalty by exchange + SEBI is legal.

Case Law 3: Allied Financial Services Case - SAT rejects SEBI's 'no jurisdiction' plea - 2023
Allied fraudulently used mutual fund units it did not own as margins for derivative trades. SEBI tried to say it's clearing corp matter. SAT directed SEBI to pass order - established that fraudulent margin reporting is SEBI's jurisdiction under PFUTP.

Case Law 4: Bonanza Portfolio Ltd. v. Mrs. Roshanara Bhinder - Bombay High Court, April 16, 2015
Held: Broker cannot square off open derivative positions without demanding additional margin. Demand is condition precedent. "Whole purpose of such bye-laws is to provide safeguard that there is mitigation of loss". If broker squares off without written margin call, client can claim damages.

Case Law 5: DJS Stock & Shares Ltd vs DCIT - ITAT Mumbai & Livelaw 2020
Penalty of Rs.3,69,661 paid to Stock Exchange for short margin was disallowed by AO u/s 37(1) as violation of law. ITAT held: "penalty levied by SEBI for shortfall in margin money cannot be considered as penalty for violation of any law" - it is compensatory and allowable as business deduction. This distinguishes between regulatory penalty vs contractual penalty for system risk.

Case Law 6: NSE Inspection Case - False Reporting Rs.2.05 Cr - SAT Proportionality Doctrine
NSE found broker falsely reported margin amounting to Rs.2,05,43,947 in Currency Derivative segment on 26-04-2016. SAT in SCC Online held: "Proportionality is a basic principle to adhere while interpreting any provisions relating to punishment with serious consequences". So penalty must be proportionate to number of instances, repeated violations, not flat 100%.

Case Law 7: SEBI Adjudication Order ADJ/Order/PM/SM/2020-21/10794
Noticee admitted short collection due to delay in cheque deposit, outstation clients, volatility. AO held extraneous factors not an excuse. Upfront collection means BEFORE trade, cheque on hand is not enough unless cleared.

5. Practical Compliance Matrix for 2026