SEBI Proposes Sweeping Reforms to Margin Trading Facility Framework: A Comprehensive Overview
The Securities and Exchange Board of India (SEBI) has released a detailed consultation paper dated June 18, 2026, outlining wide-ranging proposed amendments to the existing Margin Trading Facility (MTF) framework. The proposals collectively aim to boost operational efficiency for stock brokers, refine risk calibration mechanisms, and promote ease of doing business within the MTF segment. Public feedback on these proposals has been invited until July 9, 2026.
Background and Evolution of the MTF Framework
The Margin Trading Facility was originally introduced in 2004, providing a structured mechanism through which stock brokers could fund client purchases of eligible securities. The framework underwent a significant overhaul in 2017 to broaden participation and increase market depth.
More recently, in 2022, units of Equity ETFs classified under the Group I securities category were brought within the ambit of eligible securities for MTF purposes, as well as eligible collateral. This was a notable expansion of the asset universe available under the facility.
A further development came through a SEBI circular dated September 11, 2024, under which clients were permitted to deploy cash collateral as pay-in for their MTF positions. Simultaneously, securities equivalent in value to such cash collateral were to be treated as margin. However, this arrangement introduced a structural risk concern — specifically, Wrong-way Risk — arising from the fact that the funded stock itself was being deployed as margin for the same transaction. To account for this elevated risk, SEBI mandated a higher maintenance margin of Value at Risk (VaR) + 5 times Extreme Loss Margin (ELM) rather than the previously applicable VaR + 3 ELM threshold.
The current regulatory framework governing MTF — encompassing eligible collateral, initial and maintenance margin requirements, broker eligibility (net-worth) norms, permissible funding sources, leverage and exposure limits, disclosure requirements, the Rights and Obligations Document, and record maintenance obligations — is presently consolidated under Clause 4 of Chapter 1 of the Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024.
Rationale Behind the Proposed Review
With MTF trade volumes registering consistent growth in recent years, SEBI has identified the need to revisit the framework to ensure that risk management standards remain robust while simultaneously removing procedural friction for market participants.
The proposals were developed following inputs received from the Brokers' Industry Standards Forum (ISF), which submitted recommendations for a comprehensive MTF review. These suggestions were subsequently examined in discussions with multiple stakeholders and deliberated upon by the Secondary Market Advisory Committee (SMAC) of SEBI. The final set of proposals emerged from SMAC's recommendations and subsequent internal deliberations within the regulator.