The Indian capital market has witnessed a steady rise in both the number of investors and trading activity over the past few years. Along with this, the use of the Margin Trading Facility (MTF) has also increased, boosting market liquidity and participation. However, higher leverage also brings higher risks. Keeping this in mind, SEBI has proposed significant changes to the MTF framework to strengthen risk management and simplify operations for the brokerage industry.
Let us understand SEBI’s proposed changes in detail and why they matter for investors.
What’s Happening?
On June 19, 2026, SEBI issued a consultation paper proposing changes to the rules governing the Margin Trading Facility (MTF). Given the rapid growth of the MTF business, the regulator aims to further strengthen risk management to ensure that the system remains safe and stable. The objective of these proposed changes is to make operations easier for brokers while safeguarding investors’ interests.
Under the proposals, the net worth criteria for brokers may become stricter, and new avenues for raising funds may be introduced. Currently, most brokers rely on bank loans, NBFC funding, and commercial paper. However, under the new framework, they may also be allowed to raise capital through Non-Convertible Debentures (NCDs) and other debt instruments.
SEBI believes that by balancing robust risk controls with diversified funding sources, the MTF framework can become more secure, transparent, and flexible.
Major Changes Proposed in MTF
SEBI has proposed several significant changes to the MTF structure in view of the growing use of margin-funded trading. Under the proposals, the minimum net worth requirement for brokers offering MTF services may be increased from Rs 3 crore to Rs 5 crore. In addition, brokers operating under a Limited Liability Partnership (LLP) structure may also be allowed to provide this facility.
Under the new exposure framework, brokers will be required to reserve a portion of their net worth for their core broking business, while the remaining capital can be utilised for MTF activities. However, the total MTF exposure will be capped at 5.5 times their net worth to ensure stronger risk control.
SEBI has also proposed allowing all types of collateral accepted in the cash market to be used for MTF transactions. In addition, Early Pay-In (EPI) sell credits may be recognised as collateral under specified conditions.
The objective of these changes is to provide greater flexibility to brokers while making the MTF system more secure and efficient.
Relief in Operational Rules
SEBI has also proposed that if a share loses its eligibility or moves out of Group-I, brokers should be given 30 days to rebalance their positions in accordance with the rules. This would reduce the need for immediate adjustments and ease operational pressure.
In addition, proposals have been made to introduce a uniform rights and obligations document across all stock exchanges, revise reporting timelines for brokers, facilitate the transfer of funds and securities between general trading and MTF accounts, and classify certain exposure breaches as ‘passive breaches’, provided they are corrected within 30 days.
However, SEBI has not relaxed its stance on risk management. The regulator has proposed maintaining higher maintenance margins in cases where both a client’s cash collateral and the purchased security are used as collateral. This will help control additional risks in the market and strengthen investor protection.
What Does This Mean for Investors?
Under MTF, investors purchase shares by paying only a portion of the total amount, while brokers fund the remaining amount and charge interest, typically ranging between 9% and 15%. If SEBI’s proposals are implemented, the MTF ecosystem could become more secure, transparent, and resilient, which may increase investor confidence.
Brokers could benefit from lower funding costs through new capital-raising avenues and improved risk structures. Investors, in turn, may benefit from better services and potentially lower costs, making market access easier.
However, leverage always comes with risks. Therefore, MTF should be used cautiously and in line with an investor’s risk appetite, as losses can increase just as quickly as potential returns.
What’s Next?
Over the past three months, the average Margin Trading Funding (MTF) book across NSE and BSE has remained above Rs 1.1 lakh crore, reflecting the rapid growth of this segment. Considering its increasing size and associated risks, SEBI has initiated a comprehensive review of the framework to safeguard market stability and investor interests.
The regulator has currently invited public comments on these proposals until July 9, 2026. The final rules will be determined based on the feedback received.
If implemented, these changes could make the MTF market stronger, more transparent, and better organised, while also giving brokers greater flexibility in raising capital and managing their business operations.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
