In which situations will my Pay later (MTF) position be liquidated or converted?
Your Pay later (MTF) position can be liquidated in the following scenarios:
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Margin Call: If the value of your MTF position drops significantly, it may trigger a margin call, requiring you to add additional funds to continue to maintain your position. Failure to deposit funds to cover the shortfall, may require us to liquidate your position to the extent of shortfall.
- Example: Let’s assume you purchase 100 shares of ABC Ltd. at Rs. 500 using Pay later (MTF) with 2x leverage. So, the amount you pay is Rs. 25,000 for a position of Rs. 50,000. Now, if the stock price drops to Rs. 400, the value of your invested amount becomes Rs. 20,000. In this case, a shortfall of Rs. 5,000 is created and your position may fall below the maintenance margin, leading to a margin call. If you fail to add the additional required margin, your position may be liquidated. Please note, liquidation will be done in multiples of the exposure given. In the said example since 2x leverage is given, the liquidation will be twice of the shortfall amount.
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Stock Collateral Impact: If your MTF position is based on stock collateral and the value of the pledged stock falls, the collateral value will decrease. This can impact your margin requirement and lead to a margin call. To maintain the position, you will need to add funds in cash to cover the shortfall or you can cover the shortfall by liquidating your MTF position.
- Example: Let's assume you have pledged margin of Rs. 80,000 and use that to create a Pay later (MTF) position of Rs. 2,40,000 with 3x leverage. Now if the value of your pledged stock falls by 10% to Rs. 72,000, you will receive a shortfall message of Rs. 8,000 to cover your initial margin requirement. This margin will need to be covered either by depositing additional funds, or by selling an existing unpledged share that you may have.
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Corporate Actions: Corporate actions like stock splits, mergers, or dividends can impact your Pay later (MTF) position. We may adjust your position or require you to take specific actions to maintain your margin requirements. Whether or not your position may be liquidated, depends on the extent of margin available and the respective action taken by the risk team. Subsequently, you may need to add funds as the margin requirement in Pay Later (MTF) may increase. Kindly ensure that your Pay Later (MTF) position is sufficiently funded to avoid liquidation.
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Failure to Pledge: If you don't pledge shares bought using Pay later (MTF) by 2:00 PM on T+1 day, your position will be converted to a normal position. Depending on the margins the shares will be transferred to your beneficiary account or pledged in CUSPA account. If there is a shortfall on T+2 day CUSPA shares might get liquidated.
- Note:- You may add the funds and convert the position to delivery before position is squared off.
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Change in initial margin requirement: One of the basic parameters for computing the margin requirement on your Pay Later (MTF) positions is based on the VAR and ELM margin defined by Exchange / Clearing corporation for all stocks on daily basis. Any change in these margins leads to changes in the margin requirement for such stocks. Apart from that, our internal risk team periodically reviews the stocks eligible for Pay Later (MTF) and may revise the margin requirement for a stock either by increasing or decreasing it.
- If the margin requirement increases: You may need to add additional funds to maintain your open MTF position. If your account does not have sufficient margin after the haircut is revised, you will receive a margin shortfall message. If the shortfall is not addressed in time, your MTF position may be liquidated to cover the shortfall.
- If the margin requirement decreases (haircut is reduced): The excess margin that was previously blocked for your position will be released and made available for other trades.