Among the many regulations issued by SEBI, the margin pledge request mechanism conscientiously aims to safeguard the interest of traders. This article digs deeper into the mechanics of a margin pledge request in online stock trading and its importance for traders.
What is Margin Pledge Request in Stock Trading?
Traders must pledge stocks as collateral to take margin or loan against them. Whenever a trader is short on capital or wishes to take a large position, they can pledge shares and obtain capital for trading in the market.
Earlier, as a trader, you needed to transfer the pledged securities from your demat account to that of the broker to obtain a margin. These securities were then pledged to the Clearing Corporation by the broker. This arrangement left scope for misuse of such collateralized securities.
That’s where the new pledging request system helps.
The new margin pledge request system does not require traders to transfer the collateralized securities to the broker’s account. Instead, a pledge is marked in favor of the broker while the securities remain in the trader’s demat account only.
The broker must open a Client Securities Margin Pledge Account. This works as a new demat account. This demat account would be used by the broker to pledge the trader’s stocks again in favor of the Clearing Corporation. The ‘repledging’ will ultimately provide the trader with a new margin.
Benefits of Margin Pledge Request in Stock Trading
Here are the benefits of margin pledge request that you need to know.
1. Added Liquidity without Transferring Ownership of Stocks
You need not sell any securities to get access to margin or funds. You can avail of the trading opportunities the market presents by using your securities as collateral while keep earning dividends and price appreciation.
2. Zero Chances of Misuse
Traders would be saved from fraud or misappropriation as the stocks never leave the owner’s account. The broker is given the right to collateral and no physical ownership. This means they won’t be able to pledge the stocks wrongly in favor of some other client.
3. All Approved Securities Can be Pledged
Stock brokers such as Dhan accept any approved security for the pledge, increasing the scope of the margin pledge.
The arrangement previously led to confusion in dividend payments when the pledged securities were moved to a different account. Sometimes, traders may receive dividends as more units of the same stock or fund.
This can be an operational nightmare. However, with the funds not leaving the trader’s account, the reconciliation of dividends has eased out, and brokers are more than happy to accept all kinds of approved securities for margin pledging.
4. Traders Can Sell Pledged Stocks
As a trader, you can sell your pledged stocks without ‘unpledging’ them or waiting for their return to your trading account. You can directly sell your pledged stocks to cover the market risks on your pledged stocks.
5. Freedom to Receive Dividends
Earlier, when stocks were transferred to the broker’s account, they became the recipient of all dividends, rights, bonuses, etc. The broker are supposed to transfer the dividends to the security holder. However, if the holder is unaware, they may miss out on such claims. This is no longer the case.
Margin Pledge request in stock trading is a useful feature for traders who want to leverage their investments to the fullest capacity and trade in large volumes. This facility allows you to trade without infusing more capital into stocks. The new system introduced by SEBI makes it a more secure option where you retain physical ownership and enjoy multiple benefits.
Dhan, your all-in-one online stock trading platform, gives you an instant pledge margin on over 1450 stocks. Trade your way to ultimate success using Dhan’s integrated and lightning-fast features!