SEBI MTF rules 2026: net-worth raised to ₹5 crore

What SEBI has proposed

The Securities and Exchange Board of India (SEBI) has proposed a revamp of rules governing the margin trading facility (MTF), aiming to better regulate a segment that has grown rapidly. The proposals were issued through a consultation paper released on Thursday, and public feedback has been invited until 9 July 2026. The package covers broker eligibility, sources of funding, how exposure limits are computed, how collateral can be used, and how breaches and trading restrictions should be handled.

MTF allows investors to borrow from brokers to take leveraged positions in equities. Because leverage can amplify both gains and losses, SEBI’s consultation focuses on risk controls and operational clarity rather than expanding leverage itself.

Expanded funding sources for brokers

A key proposal is to broaden the funding avenues available to brokers for offering MTF. Today, brokers can access funds through routes such as bank loans, NBFC borrowings and commercial papers. SEBI has proposed adding the ability to raise resources through non-convertible debentures (NCDs) and other debt instruments.

The intent, as described in the consultation, is to expand permitted sources rather than leaving brokers dependent on a narrower pool of borrowings. This also aligns with SEBI’s broader approach of specifying permitted funding channels for regulated activities.

Higher eligibility bar: net worth floor moves to ₹5 crore

SEBI has proposed increasing the minimum net-worth threshold for brokers offering MTF from ₹3 crore to ₹5 crore. The consultation paper explicitly states that the minimum net-worth requirement “may be increased to ₹5 crore.”

The regulator has also proposed extending eligibility beyond corporate brokers by allowing brokers structured as Limited Liability Partnerships (LLPs) to offer MTF.

New exposure framework and ring-fencing of net worth

SEBI has proposed a more defined method to determine how much of a broker’s net worth is available for MTF. Under the proposal, brokers would need to ring-fence a portion of net worth for core broking operations and other activities.

The consultation paper describes the ring-fenced portion as the lower of:

• Twice the minimum net worth required for core broking operations, or
• 50% of the broker’s net worth

The remaining net worth may be used for MTF, subject to an overall exposure limit of 5.5 times net worth. This is positioned as a change from current practice, where brokers can set their own caps based on borrowed funds and 50% of their net worth.

SEBI rejects lower margins for cash collateral pay-in

Earlier reporting had indicated SEBI was considering lowering margin requirements for some margin-funded trades. In the draft consultation paper, however, SEBI refused to reduce margins for MTF positions where cash collateral is used as pay-in and funded securities are treated as collateral.

SEBI observed that the additional margin requirement is intended to address “wrong-way risk” and proposed that the existing requirement of higher maintenance margin (VaR + 5 ELM) may continue.

Collateral handling: broader alignment with the cash market

SEBI has also proposed simplifying operational rules around collateral for MTF. One proposal is that collateral already accepted in the regular cash market should also be valid for MTF transactions.

In addition, SEBI proposed an operational change related to early pay-in. If an investor sells shares early, the proceeds from that sale could immediately be used as collateral for new MTF positions, provided any existing margin debts are settled first.

30-day window to rebalance when a stock becomes restricted

The consultation paper proposes a 30-day rebalancing window if a funded stock or its collateral:

• Moves out of the Group I category,
• Is shifted to the trade-to-trade category, or
• Faces suspension or other new trading restrictions

During this period, brokers and investors would get time to rebalance portfolios to comply with regulatory requirements. This is aimed at avoiding abrupt forced actions the moment a security’s classification changes.

Client concentration: defining “passive breaches”

SEBI has proposed recognising certain client-level concentration breaches as “passive breaches.” These can occur when a broker’s overall MTF exposure shrinks, causing a client that was earlier compliant to cross the 10% single-client exposure threshold.

In such cases, SEBI proposes a 30-day period for the broker to bring the exposure back within limits. During the window, the broker would need to restrict any additional funding for that client until the exposure is reduced.

Review of group classification and margin framework

SEBI said it plans to review the group classification of securities for the purposes of margin, collateral, MTF, and the Securities Lending and Borrowing Mechanism (SLBM). A separate consultation paper on this topic is expected.

Separately, people familiar with the matter have indicated SEBI is also evaluating a wider revamp of India’s margin framework for cash equities and derivatives trading, including whether the SPAN model introduced more than two decades ago remains adequate. Those discussions were described as preliminary and far from a decision.

Key proposals at a glance

What happens next

SEBI has invited comments on the consultation paper until 9 July 2026. After the feedback period, the regulator may finalise the framework and issue formal directions or circulars.

For brokers and active market participants, the consultation signals that SEBI is tightening eligibility and exposure safeguards while also allowing more structured funding avenues and clearer operational rules for collateral and rebalancing.