SEBI Plans Overhaul Of Margin Trading Rules With Broader Collateral, NCD Funding

The Securities and Exchange Board of India (SEBI) is reviewing the MTF framework to widen the range of eligible collateral, as per Moneycontrol. Instruments under consideration include Government Securities, mutual fund units, Sovereign Gold Bonds, commodity and debt exchange-traded funds (ETFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and Early Pay-In (EPI) credits.\

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MTF allows investors to purchase shares by paying a portion upfront, with the remaining funded by brokers under regulated collateral norms.

According to Moneycontrol, SEBI is aligning MTF collateral norms with those accepted by clearing corporations in the cash market. The regulator is also examining the use of unfunded sale proceeds as collateral under specific conditions.

Expansion Of Liquid Assets Category

SEBI is also considering expanding the definition of liquid assets eligible for MTF and cash market transactions, according to Moneycontrol. Group I securities such as ETFs, REITs, and InvITs, which have continuous price discovery and can be pledged through depositories, may be included.

The proposal includes allowing equity ETFs, commodity ETFs, and debt ETFs (excluding overnight and liquid ETFs), along with REITs and InvITs meeting liquidity criteria, to be treated as ‘Other Liquid Assets’, as per Moneycontrol.

Funding Through Non-Convertible Debentures

The regulator is also examining allowing brokers to raise funds for MTF through non-convertible debentures (NCDs), according to Moneycontrol. Right now, brokers can fund MTF with their own money, money they borrow from banks and NBFCs, commercial papers, and unsecured loans from directors and promoters.

Changes In Exposure Framework

SEBI is reviewing the exposure framework for MTF to enable more efficient use of broker capital. Currently, brokers can deploy up to 50% of their net worth for MTF.

As per Moneycontrol, the overall exposure cap of 5.5 times net worth may remain unchanged, but brokers could get flexibility in deploying capital. A portion of net worth may be ring-fenced, either at least twice the minimum regulatory requirement or 50% of net worth, whichever is lower.

Higher Net Worth Requirement, LLP Inclusion

SEBI may increase the minimum net worth requirement for brokers offering MTF from ₹3 crore to ₹5 crore, according to Moneycontrol. The regulator is also considering allowing Limited Liability Partnerships (LLPs) to offer MTF services.

Operational Changes Under Review

SEBI is evaluating operational measures such as a 15-day rebalancing window if collateral securities lose eligibility, classification of MTF trades at order placement, and standardisation of rights and obligations across exchanges, as per Moneycontrol.

The MTF book size crossed ₹1.20 lakh crore in January, recording over 42% year-on-year growth, according to Moneycontrol data. The regulator is expected to release a consultation paper for stakeholder feedback on the proposed changes.