NSE Tightens Rules, Removes 1,010 Stocks from Margin Trading List

The National Stock Exchange (NSE) has announced new rules that significantly reduce the number of stocks eligible for margin trading, according to a report by Moneycontrol. Starting August 1, 2024, the exchange will cut 1,010 stocks, including well-known companies like Adani Power, Yes Bank, Suzlon, Bharat Dynamics, and Paytm, from the list of eligible collateral.

Previously, 1,730 stocks were available for margin funding, but the NSE’s recent circular stated that only stocks traded at least 99% of the time in the last six months, with a low impact cost, would be accepted as collateral.

What Does This Mean for Investors?

When financial institutions give loans, they require collateral—assets like houses, cars, gold, or stocks. In margin trading, brokers offer short-term loans using traders’ existing shares as collateral. However, not all company shares qualify for this.

The market regulator ensures that only stocks meeting certain criteria can be used as collateral. With the new NSE rules, the list of eligible shares will shrink.

Stocks Excluded from the List

Stocks like Adani Power, Yes Bank, Suzlon, HUDCO, Bharat Dynamics, Bharti Hexacom, IRB Infra, NBCC, Paytm, Inox Wind, and JBM Auto will no longer be eligible for margin funding. In total, 1,010 stocks will be excluded.

What is Margin Trading?

Margin trading allows investors to buy shares by paying a fraction of the current price, with the broker covering the rest as a loan. The investor then pays interest on this loan.

Impact on the Market

This crackdown will reduce risks related to funding. The stocks that remain on the list are highly liquid and considered strong. According to Ashish Rathi, director at HDFC Securities, the new rules mean fewer shares will be accepted as collateral by the clearing corporation, but this will have little impact on the margin trading facility because the remaining stocks are robust and liquid.