More Stories

Informist, Thursday, Jun. 18, 2026

 

--SEBI issues consultation paper on margin trading facility framework review

--SEBI mulls allowing brokers to borrow via NCDs for funding margin trading

--SEBI mulls hike in networth floor for broker eligibility for margin trading

 

MUMBAI - The overall risk associated with margin trading facility transactions increased after the Securities and Exchange Board of India allowed, in September 2024, clients' securities equivalent to the cash collateral requirement to be used as margin for margin trading positions, the regulator said in a consultation paper issued Thursday on a review of the margin trading facility framework.

 

The September 2024 change had introduced a wrong-way risk because the funded stock itself could be used as collateral, SEBI said in the paper. The market regulator subsequently made the allowance subject to the condition that such transactions attract a higher margin requirement.

 

In the consultation paper, SEBI proposed expanding the range of collateral available for margin trading. It said the initial margin in such transactions is currently accepted in the form of cash, cash equivalents, and equity shares. To address this, SEBI proposed allowing collateral eligible in the cash market to be used for margin trading transactions. In addition, the regulator proposed allowing early pay-in sell credits to serve as collateral for new margin trading positions, subject to certain conditions. 

 

SEBI said the proposals in the consultation paper on the margin trading facility framework were aimed at easing the doing business for stock brokers. Apart from that, the proposals aimed to calibrate the margining mechanism and risk management within the framework, SEBI said.

 

Introduced in 2004, the margin trading facility allowed clients of brokers to take long positions in stocks in the cash market by paying only a margin for the value of the position, and the broker would fund the remaining value through the use of their own funds or by borrowing funds from banks and non-banking finance companies. The last comprehensive review of the margin trading facility framework was carried out in 2017.

 

In another proposal, which dilutes the stringency of the rules, the consultation proposed that brokers be given a rebalancing period of 30 days where a stock being funded under the margin trading facility "moves out of the Group I category, or is shifted to the Trade-for-Trade category, or is suspended from normal market trading for any reason." Such a rebalancing period is not permitted under the rules currently. 

 

SEBI also proposed allowing brokers to fund clients' margin trading positions with funds raised through the issuance of non-convertible debentures or other debt instruments. This adds to the existing pool of sources, which includes its own funds, borrowing from banks and non-banking finance companies, issuance of commercial papers, and borrowing from its promoters and directors.

 

The market regulator also proposed an important change in the eligibility criteria for brokers for offering margin trading facilities to clients. Currently, only corporate brokers with a net worth of at least INR 30 million are eligible. SEBI wants the minimum net worth threshold raised to INR 50 million. It also proposed to allow broking firms operating as limited liability partnerships to offer margin trading facilities to their clients.

 

SEBI said in the consultation paper that it had received suggestions to reduce the maintenance margin in cases where the funded stock was considered towards the margin to the extent of the cash collateral. SEBI had kept the applicable margin at value-at-risk plus five times the extreme loss margin.

 

The market regulator did not accept the suggestions to reduce this margin, saying that the margin requirement for such positions would need to be higher than that for normal margin trading transactions and was kept to address the wrong-way risk. "As the margin (collateral) and the funded exposure are the same, a decline in the price of that security may erode the value of both the margin (collateral) and the funded stock simultaneously," SEBI said in the consultation paper.

 

SEBI has sought feedback on the proposals in the consultation paper by Jul. 9. SEBI also said it will issue a separate consultation paper on the classification of securities for the purposes of margin, collateral, margin trading facilities, and securities lending mechanisms.  End

 

Reported by Rajesh Gajra

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000 /+91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.