The last time around when Sebi changed the rules regarding trading margins, especially the volatility margins, they imposed some stringent measures. One of these measures was the concentration margin. This is a margin that was imposed on a member of the exchange for simply holding onto a larger proportion of a particular stock or group of stocks. Now, this has been done away with. The refrain that this could lead to unnecessary manipulation is not true. Disproportionate margins do not curb manipulation, only effective surveillance and compliance by members will do that. And in the past Sebi's surveillance mechanism has proven to beunequal to the task.

A margin is that part of a securities transaction that is kept liquid. The idea is to have a buffer in case of a crisis, besides linking trading volumes to the participants' networth. In that sense the level of margins imposed earlier was adequate, but the structure was not. But what Sebi has rightly changed is that brokers will now be allowed to offset the benefit of any credit arising out of marking to market with a mark to market loss in any position. Further, the change in the method of calculating these margins is also welcome, as it links current margins to price movements over a larger time frame, thus smoothing out short-term responses to margin calls. These changes will benefit the broking community tremendously.