Markets regulator Sebi on Thursday proposed a series of changes to the Margin Trading Facility (MTF) framework, including higher net-worth requirements for brokers, expanded funding sources, and greater operational flexibility, as part of a comprehensive review aimed at strengthening the mechanism.
In its consultation paper, Sebi proposed that the minimum net-worth threshold for brokers offering MTF be increased from Rs 3 crore to Rs 5 crore.
"The minimum net-worth threshold for eligibility of the stock broker to offer MTF may be increased to Rs 5 crore," the regulator said.
The regulator has also proposed allowing brokers structured as Limited Liability Partnerships (LLPs) to offer margin trading services.
To diversify funding avenues, Sebi suggested that brokers be permitted to raise resources through debt instruments.
"The sources of funds for offering MTF may be expanded to include borrowing through issuance of Non-Convertible Debentures (NCDs) or any other debt instruments by the broker, in addition to the existing permitted sources," Sebi suggested.
The regulator has proposed changes to exposure norms as well.
Under the proposal, an amount equal to the lower of twice the minimum net worth required for broking operations and 50 per cent of net worth would remain ring-fenced, while the remaining net worth can be deployed for MTF within an overall exposure cap.
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Sebi has also proposed relief for stock brokers in situations where securities funded under MTF undergo classification changes.
"Where a security being funded or given as collateral by a client under MTF 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, a rebalancing period of 30 days may be provided to the stock broker, to ensure compliance with the regulatory requirement," the paper noted.
Further, the regulator proposed standardising client agreements across exchanges. "A uniform 'Rights and Obligations Document' may be prepared jointly by all stock exchanges. This will ensure uniformity across exchanges and to provide clarity to stock brokers and clients," it said.
On client concentration risks, Sebi suggested that passive breaches of the existing single-client exposure limit may not be treated as violations under certain conditions. Brokers would be required to ensure compliance within 30 days, while refraining from extending any additional MTF exposure to the client during that period.
The regulator also proposed to streamline reporting requirements by allowing stock brokers to report MTF details to exchanges on a T+1 basis before clearing corporation pay-in timelines.
Sebi further proposed fungibility between normal and MTF client ledgers. "Fungibility of unencumbered funds or securities between the normal ledger and the MTF ledger of a client may be permitted," the paper said.
On margin requirements where client cash is used for pay-in and the funded securities are considered as collateral, Sebi rejected suggestions to lower maintenance margins.
The regulator observed that "the additional margin requirement has been kept to address the wrong-way risk" and proposed that "the existing requirement of higher maintenance margin (VaR + 5 ELM) ... may be continued."
The regulator noted that MTF is currently available only for equity shares and units of equity ETFs classified as Group I securities and said a separate consultation paper on the review of security classification for margin, collateral, MTF and Securities Lending and Borrowing Mechanism (SLBM) will be issued separately.
The Securities and Exchange Board of India (Sebi) has sought public comments on the proposals till July 9.
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(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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