SEBI proposes wider funding avenues, higher exposure limits for margin trading facility

Mumbai, June 18 (IANS) The Securities and Exchange Board of India (SEBI) on Thursday proposed a comprehensive overhaul of the Margin Trading Facility (MTF) framework, including broader funding options for brokers, higher exposure limits and several operational relaxations, as the use of margin funding continues to grow in the Indian stock market.

In a consultation paper, the market regulator said the proposed changes are aimed at strengthening risk management while enhancing ease of doing business for brokers and investors. SEBI has invited public comments on the proposals until July 9.

One of the key proposals is to expand the forms of collateral that can be used under the margin trading framework.

The regulator has also suggested allowing brokers to accept certain Early Pay-In (EPI) sale credits as collateral for fresh MTF positions, subject to specified safeguards.

To provide greater flexibility in raising funds for margin trading activities, SEBI has proposed permitting brokers to mobilise resources through Non-Convertible Debentures (NCDs) and other debt instruments.

At present, brokers can fund MTF operations primarily through bank borrowings, loans from non-banking financial companies and commercial paper.

The regulator has also recommended revising exposure limits for brokers offering margin trading facilities.

Under the proposal, brokers would be allowed to deploy a larger portion of their net worth toward margin funding, while maintaining a minimum capital buffer and adhering to an overall exposure ceiling of 5.5 times their net worth.

In another significant change, SEBI has proposed increasing the minimum net-worth requirement for brokers providing MTF services from Rs 3 crore to Rs 5 crore.

The regulator has also suggested extending eligibility to Limited Liability Partnerships (LLPs), which are currently not permitted to offer margin trading facilities.

To ease operational challenges, SEBI has proposed granting brokers a 30-day rebalancing period in cases where securities eligible for margin funding lose their status.

This could happen if a stock moves out of the Group I category, is shifted to the trade-for-trade segment or is no longer available for normal market trading.

–IANS

pk