SEBI Mulls Margin Rule Revamp and MTF Changes in 2026

The regulatory review now on the table

India’s market regulator is evaluating a broad revamp of the country’s margin framework for both cash equities and derivatives trading, according to three people aware of the development. The review is being discussed by the Risk Management Review Committee (RMRC) of the Securities and Exchange Board of India (SEBI), the people said on the condition of anonymity. At the centre of the discussion is whether the current framework, built largely around the Standard Portfolio Analysis of Risk (SPAN) model introduced more than two decades ago, remains adequate for today’s market structure. SPAN is a risk-based margining system used by exchanges to calculate how much collateral or margin a trader must keep. The discussions are described as preliminary, and the committee is far from reaching a decision.

Why SPAN is being re-examined

The RMRC is examining whether the long-running SPAN-based approach remains sufficient for modern market risks. Over time, India’s market microstructure has evolved, with higher participation and changing trading patterns across products. A review of margin models typically focuses on whether margin calculations reflect real-time exposure and whether they can handle stress conditions without creating operational strain. In parallel, SEBI has also flagged technology-linked risks in the broader securities ecosystem. In an advisory issued on 5 May, SEBI warned that fast-evolving artificial intelligence tools could amplify cyber vulnerabilities across the securities ecosystem. While the margin review and the cybersecurity advisory are separate items, they both sit within the broader theme of strengthening market infrastructure and risk controls.

Margin Trading Facility (MTF) overhaul under discussion

Alongside the broader margin framework discussion, SEBI is considering an overhaul of Margin Trading Facility (MTF) norms, according to multiple sources. MTF governs how investors borrow money from brokers to take leveraged positions in equity markets. The proposals under consideration span broker eligibility requirements, the range of instruments accepted as collateral, and operational changes to make pledging and usage of liquid assets smoother. Sources said SEBI is looking at providing more flexibility and operational relaxations within MTF. A detailed circular on expanding collateral is expected soon, as per the people cited.

Expanding eligible collateral for MTF

One of the key proposals discussed is expanding the eligible collateral that can be pledged for MTF. Sources said the regulator may include government securities, mutual funds, exchange-traded funds (ETFs), and units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). A person familiar with the developments said that investors would continue to invest only in group 1 securities in MTF, but collateral could be expanded beyond group 1 to include instruments such as ETFs, mutual funds, and non-convertible debentures (NCDs). Other sources also referenced a broader set of potential collateral categories, including liquid assets such as sovereign instruments and fund units. Separately, SEBI is evaluating the possibility of allowing brokers to raise funds through NCD issuances to support MTF positions, according to the sources cited.

Broker eligibility: higher minimum net worth

SEBI is also discussing raising the minimum net-worth requirement for stock brokers to offer MTF services from ₹3 crore to ₹5 crore. This proposed change has also appeared in SEBI’s broader reform discussions on exchange regulations, where a consultation process has been referenced with stakeholder comments accepted until January 30, 2026. A summary table of the net-worth change under discussion has been reported as follows: minimum net worth of ₹3.00 crore currently, proposed to ₹5.00 crore or higher, with the last review noted as 2022 and the requirement described as under revision. The reform package also indicated a possible shift in process where exchanges could gain authority to revise net-worth requirements independently without seeking prior regulatory approval.

Dynamic price bands and volatility controls across exchanges

Another area under discussion is implementing dynamic price bands across exchanges. Sources said SEBI is considering dynamic, narrow price bands to curb abnormality in option pricing and strengthen volatility controls. One source said dynamic pricing is already implemented on the NSE and the regulator wants other exchanges, including commodities, to implement it. The same source pointed to system-related issues observed at some market infrastructure institution (MII) level that need to be made robust, while noting the system could be replicated easily. Under the framework, price bands may be adjusted and kept flexible depending on market conditions and volatility.

A recent, narrow change to expiry-day margin benefits

Separately from the broader revamp discussion, SEBI has already issued a focused update to margin benefit rules for calendar spreads in single-stock derivatives. Through a circular dated February 5, 2026, SEBI adjusted how margin benefits apply on expiry day, with the revised framework coming into effect from May 5, 2026. The update is narrow in scope and does not redesign the derivatives margin system. Under the revised framework, the margin benefit for a calendar spread will not apply on expiry day if one leg of the spread expires on that day. SEBI reviewed expiry-day trading patterns and observed repeated instances of sudden margin shortfalls during expiry sessions, where a hedge leg expires, the offset disappears in real time, and remaining exposure may become unhedged with limited time for brokers to collect additional margin.

Key facts under consideration

Market context and why these discussions matter

The MTF overhaul is being evaluated at a time when Indian equity markets are navigating multiple pressures, including an Iran war related energy shock, rupee volatility, and FPI outflows of ₹1.27 lakh crore in 2026, according to the sources cited. The same context also referenced a Nifty recovery from its worst monthly fall since March 2020. Within such conditions, SEBI’s discussions on margins, collateral, and volatility controls are closely watched because these tools affect how leverage operates, how quickly risk is contained during stress, and how operational processes work at brokers and exchanges. At the same time, SEBI has not issued a formal consultation paper on the MTF proposals at this stage, according to the cited sources.

What happens next

Sources indicated a detailed circular on expanded collateral is expected soon, but the broader set of changes remains under evaluation. Any final framework, including precise net-worth thresholds, categories of NCDs eligible for MTF-related funding, and the definition of expanded collateral, is expected to move through SEBI’s standard consultation and regulatory process before implementation. The RMRC’s work on the wider margin framework is also at an early stage, with no decision reported yet. For market participants, the next concrete signals will come from formal SEBI papers, circulars, and exchange-level implementation timelines.