The Securities and Exchange Board of India (SEBI) may ease margin norms for certain Market Trading Facility (MTF) trades to lower the margin burden [1].
This proposal represents a significant shift in how the regulator manages leverage in the Indian stock market. By reducing the financial hurdles for traders, SEBI intends to increase liquidity and simplify the operational framework for both brokers and investors.
The regulator said the proposal on Friday as part of a broader effort to simplify the trading-related framework at stock exchanges [2]. According to the plan, SEBI aims to remove duplication within its rules and reduce the overall compliance burden on market participants [2].
A central part of this overhaul involves the maintenance margin requirement. SEBI proposes reducing the higher maintenance margin to a formula consisting of Value at Risk (VaR) plus three times the Exposure Limit Measure (ELM) [1]. This change is designed to make the cost of maintaining leveraged positions more manageable for traders using MTF services.
Beyond margin adjustments, the regulator is planning a wider overhaul of the leverage trading rule book [3]. This includes exploring higher net-worth requirements for brokers who provide funding via non-convertible debentures (NCDs) for MTF trades [3]. These measures are intended to ensure that while the burden on traders is reduced, the systemic risk managed by brokers remains stable.
SEBI has not yet finalized the timeline for these implementation changes. However, the move signals a transition toward a more streamlined regulatory environment that balances market accessibility with financial stability [2].
“SEBI may ease margin norms for certain Market Trading Facility (MTF) trades”
This regulatory shift suggests that SEBI is attempting to stimulate retail and institutional trading activity by lowering the cost of leverage. By shifting the maintenance margin to a VaR and ELM-based formula, the regulator is moving toward a more risk-sensitive approach rather than a flat requirement. However, the simultaneous push for higher broker net-worth suggests that the regulator is shifting the risk-bearing burden from the individual trader to the financial intermediary to prevent systemic failures.
