Comprehensive Review of Margin Trading Facility
Summary
This circular establishes a revised regulatory framework for Margin Trading Facility (MTF) in India, superseding previous guidelines from 2004 and 2005. It defines eligibility criteria for securities, stock brokers, and clients, while specifying margin requirements, leverage limits, and funding sources. The document mandates strict disclosure, record-keeping, and risk management protocols to protect investors and ensure market stability.
Text
SEBI vide circular SEBI/MRD/SE/SU/Cir-15/04 dated March 19, 2004 had prescribed framework for permitting stock brokers to provide margin trading facility to their clients. The said framework was revised vide circular SEBI/MRD/SE/SU/Cir-16/04 dated March 31, 2004 and circular MRD/DoP/SE/Cir-08/2005 dated March 04, 2005.
Equity Shares that are classified as 'Group I security' as per SEBI Master circular No. SEBI/HO/MRD/DP/CIR/P/2016/135 dated December 16, 2016, shall be eligible for margin trading facility.
In order to avail margin trading facility, initial margin required shall be as under; Group I stocks available for trading in the F & O Segment: VaR + 3 times of applicable ELM*; Group I stocks other than F&O stocks: VaR + 5 times of applicable ELM*
The initial margin payable by the client to the Stock Broker shall be in the form of cash, cash equivalent or Group I equity shares, with appropriate hair cut as specified in SEBI Master circular no. SEBI/HO/MRD/DP/CIR/P/2016/135 dated December 16, 2016.
The stocks deposited as collateral... and the stocks purchased under the margin trading facility (Funded stocks) shall be identifiable separately and no comingling shall be permitted... Collateral and Funded stocks shall be marked to market on a daily basis
Stock brokers shall ensure maintenance of the aforesaid margin at all times during the period that the margin trading facility is being availed by the client. In case of short fall, stock broker shall make necessary margin calls.
The exchange/stock broker, based on the risk assessment, shall have the discretion to impose/collect higher margin than the margin specified in para-4 above.
The broker shall liquidate the securities, if the client fails to meet the margin call to comply with the conditions as mentioned in this circular or specified in the "Rights and Obligations Document" specified by exchange.
However, the broker shall not liquidate or use in any manner the securities of the client in any situation other than the conditions stipulated at para-9 above.
Only corporate stock brokers with a net worth of at least Rs.3.00 crore shall be eligible to offer margin trading facility to their clients.
The “net worth” for the purpose of margin trading facility shall be as specified in SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
The stock brokers shall submit to the stock exchange a half-yearly certificate, as on 31st March and 30th September of each year, from an auditor confirming the net worth.
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Source: SecMarx — Comprehensive Review of Margin Trading Facility. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.