The market regulator, the Securities and Exchange Board of India (Sebi), on Thursday proposed an overhaul of the Margin Trading Facility (MTF) framework. In a consultation paper, Sebi proposed changes to brokers’ eligibility criteria for offering MTF, disclosure requirements, and the treatment of breaches of client-level exposure limits, sources of funds for MTF, among others.
The regulator has proposed increasing the net worth requirement for brokers eligible to offer MTF from ₹3 crore to ₹5 crore. However, Sebi has proposed that limited liability partnerships (LLPs), in addition to corporate brokers, be allowed to offer MTFs.
Regarding the maximum allowable exposure to brokers, the regulator came up with a two-step formula. Brokers must completely set aside and protect a specific portion of their net worth. This locked-away amount will be the lower of either twice the minimum net worth required to run their regular daily brokerage business or 50 per cent of their total net worth. The remaining net worth may be used for MTF, within the overall exposure limit of 5.5 times net worth.
The sources of funds for offering MTF may be expanded to include borrowings through the issuance of non-convertible debentures (NCDs) or other debt instruments by the broker, in addition to the existing permitted sources.
In the event that a security being funded or given as collateral by a client under MTF moves out of the Group I category, is shifted to the trade-to-trade category, or is suspended from normal market trading for any reason, a rebalancing period of 30 days may be provided to the stockbroker to ensure compliance with the regulatory requirement.
Regarding breaches of the single-client exposure limit, the regulator said that if a client who was initially within the permissible single-client limit breaches the threshold due to a reduction in the stockbroker’s overall MTF exposure, such breaches may be considered passive breaches, subject to certain conditions. The broker should have a 30-day window to ensure the client scales back the trading position and complies with the regulatory cap, which mandates that no single client’s holdings exceed 10 per cent of the brokerage’s maximum allowable exposure. Until the client reduces the position, no additional exposure through MTF should be offered.
The regulator further said it is in the process of reviewing the group classification of securities for the purpose of margin, collateral, MTF and the Securities Lending and Borrowing Mechanism (SLBM). A consultation paper in this regard will be issued separately.
Sebi has invited public comments on the proposals by July 9, 2026.
