The Securities and Exchange Board of India (SEBI) has put forth a comprehensive revamp of the Margin Trading Facility (MTF) framework, suggesting wider funding options for brokers, increased exposure limits, and operational relaxations. This move comes as margin funding sees a rise in the Indian stock market. SEBI aims to enhance risk management and streamline business processes for brokers and investors through these proposed changes.
One significant proposal is the expansion of acceptable collateral types within the margin trading framework. SEBI has also recommended that brokers be allowed to use specific Early Pay-In (EPI) sale credits as collateral for new MTF positions, with defined safeguards in place. Additionally, SEBI has suggested enabling brokers to raise funds for margin trading activities through Non-Convertible Debentures (NCDs) and other debt instruments, offering more flexibility compared to the current reliance on bank borrowings and loans.
In a bid to adjust exposure limits, SEBI’s proposal entails permitting brokers to allocate a larger portion of their net worth towards margin funding, while maintaining a minimum capital buffer and adhering to an overall exposure cap of 5.5 times their net worth. Furthermore, SEBI has proposed an increase in the minimum net-worth requirement for brokers offering MTF services from Rs 3 crore to Rs 5 crore. Limited Liability Partnerships (LLPs) may also become eligible to provide margin trading facilities, as per SEBI’s recommendations.
To address operational hurdles, SEBI has suggested a 30-day rebalancing period for brokers in cases where securities eligible for margin funding lose their status. This scenario could arise if a stock transitions out of the Group I category, moves to the trade-for-trade segment, or becomes unavailable for regular market trading.
