SEBI's 50-50 Rule: Understanding Cash and Collateral Components

SEBI's 50-50 rule for Option Selling

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Cash Component vs. Collateral Component

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Fixed Deposits as a Cash Component

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Challenges with Fixed Deposits

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Liquid Funds as a Cash Component

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Sovereign Gold Bonds as a Cash Component

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Short-Term Capital Gains and Liquid Funds

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Bankers' Guarantee as Cash Component

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Complying with SEBI's Regulations

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SEBI's 50-50 Rule: Understanding Cash and Collateral Components

SEBI's 50-50 rule for Option Selling

Mandates 50% cash component and 50% collateral component

Cash Component vs. Collateral Component

Cash component includes liquid assets like fixed deposits, Liquid Funds, Sovereign gold bonds etc.,

Fixed Deposits as a Cash Component

Fixed deposits offer no haircut and easy exit, making them an appealing option for fulfilling the cash component requirement

Challenges with Fixed Deposits

Many brokers do not accept fixed deposits, complicating the process for clients

Liquid Funds as a Cash Component

Liquid funds provide an alternative option for the cash component, despite lower returns and a 10% haircut

Sovereign Gold Bonds as a Cash Component

Consider sovereign gold bonds for long-term investment + 2.5% additional interest being offered by Govt Of India, but be mindful of gold price fluctuations

Short-Term Capital Gains and Liquid Funds

Holding liquid funds for less than three years may result in short-term capital gains and tax implications

Bankers' Guarantee as Cash Component

SEBI's recent circular prevents brokers from leveraging bankers' guarantee beyond available funds to safeguard traders' interests

Brokers receive bankers' guarantee, posing challenges and additional charges for HNI clients

Complying with SEBI's Regulations

Understanding SEBI's 50-50 rule and adhering to the prescribed cash and collateral components is crucial for a compliant trading experience