What is Early Pay-in (EPI) Mechanism?

When buying and selling stocks, you can do two types of trades: Intraday (Where you buy and sell the stocks within the same day itself) and Delivery (Where shares are kept in your demat holdings and settled on a T+1 basis).

For delivery trades, when selling stocks from your holdings, your broker needs to verify the sale of your shares with CDSL. He then gets them cleared for settlement with the clearing corporation after getting confirmation from the exchange that you have traded them. This whole process takes T+1 day to complete.

Your broker can block those shares for settlement in your demat account on the trading day (T Day) itself. The broker can then initiate an early settlement of the shares with the clearing corporation. This mechanism of blocking of shares by the broker with CDSL in the client’s demat account for sell trade is called as Early Pay-in or EPI, since the instruction for blocking of securities in the client’s demat account is irrevocable, the Clearing corporation provides the margin benefit to the client which is known as EPI benefit/ Margin.

After EPI is done the broker can provide a margin up to 100% of the sale proceeds to your account. This margin can be used for trading purposes in both cash & derivative segments. Earlier, the EPI process used to take a long time to settle, and the margin was added to your trading account in multiple batches a few hours after all stakeholders had confirmed the trade.

At Share.Market we have introduced faster processing of EPI that allows your account to be credited with the EPI margin within 5 minutes of execution of the sell order in delivery mode, allowing you to quickly use the margin for other trades and avoid missing market opportunities. This is just the first step towards making the process even faster in the future.

As a user, what do you need to know?

Although the EPI process brings many benefits to you as a user, there are some cases that you need to know about to avoid any issues. Let us discuss each of them in detail-

As per a recent regulatory change, effective from 07 October 2024, 100% of the proceeds from the sale of holdings are credited to the demat and trading account on the same day. Moreover, they are made available for all trades, including stocks and F&O positions.

Previously, only 80% of these proceeds were available for the same day, while the remaining 20% were accessible on the next day of the sale.

Let’s assume that you sold shares worth ₹1,00,000 from your holdings.

Before the change: ₹80,000, i.e., 80% of the amount would have been available for trading on the same day. The remaining 20%, i.e., ₹20,000 would have been accessible only on the next day.

After the change: The entire amount of ₹1,00,000 is available for trading on the same day you sell the shares.

What happens in the case of:

Buy Today Sell Tomorrow (BTST)

Mr A bought shares worth ₹1,00,000 of Company XYZ on Monday (Trade day). He sold these shares for the same amount on Tuesday (T+1 day). These funds will not be available for trading on Tuesday. Instead, 100% of the funds (₹1,00,000) will be released on Wednesday (T+2).

When these holdings are sold, the early pay-in (EPI) process cannot be carried out until the shares are settled in a client’s demat account. Therefore, they can only be used from the next trading day when the shares are settled. This remains the same, even after the recent regulatory change.

Intraday Profits

The profits are not usable until the Exchanges settle them, which will happen on the T+1 day.

Options Sold

The proceeds from the sale of options can be used to buy options in the same segment. For example, if one sells stock options, the proceeds can be used only to buy stock options again. They cannot be used to buy currency options, and vice versa.

Hedged Position

If adequate margins are not available, one can exit the higher risk/margin positions first, as margin requirements are tracked intraday, and shortfalls may lead to penalties.

Conclusion

By understanding EPI and its limitations, you can leverage its advantages for smoother and more informed investment decisions. As we continuously strive to improve your experience, stay tuned for further advancements in our EPI process.

We encourage you to consult our resources and support team for any further clarification or assistance. Happy trading!