MARGIN TRADING FACILITY – FAQ

Q1. What are the eligibility requirements for Members to provide Margin Trading Facility
(MTF) to clients?
A. Only a corporate Member with a net worth of at least Rs.3.00 crores, computed as per the
Dr. L C Gupta formula, shall be eligible to offer margin trading facility to their clients after
obtaining prior approval of the Exchange.

Q2. How to obtain permission from the Exchange to offer margin trading facility to clients?
A. Member needs to seek prior permission of Exchange by submitting an application form
under ENIT New Compliance on Member’s Portal as per the format mentioned at the link-
https://www.nseindia.com/trade/Membership-formats under the tab “Form for applying for
approval or withdrawal of Margin Trading Facility” along with certified extract of Board
Resolution and Auditor’s certificate on net worth.

Q3. How to apply for withdrawal of MTF?

A. Member can apply for withdrawal by submitting an online application form under ENIT New
Compliance on Member’s Portal as per the format mentioned at the link-
https://www.nseindia.com/trade/Membership-formats under the tab “Form for applying for
approval or withdrawal of Margin Trading Facility” along with certified extract of Board
Resolution. While seeking the withdrawal, Member must ensure that all open positions
under MTF are liquidated and reported to the Exchange accordingly.

Q4. Is consent from the clients required before offering Margin Trading facility to them?
A. Member shall obtain client consent in writing in his own hand or any irrefutable electronic
method. Rights & obligations and the Terms and conditions shall also be communicated to
the client.

Q5. Does Member require to allot single UCC to same client who avail both Normal Trading
and Margin Trading Facility?
A. All clients shall have only one unique client code (UCC) per Member which shall be reported
to the Exchange. Clients availing Margin trading facility (MTF) should be segregated at back
office with the Trading Member, namely MTF account & Non-MTF account, which shall be
mapped to the said unique client code (UCC).

Q6. Which securities are eligible for margin trading?

A. All the equity shares classified as 'Group I security' as per Section 1.1.3 of Chapter IV of SEBI
Master Circular No. SEBI/HO/MRD/DP/CIR/P/117 dated October 25, 2019 (previous SEBI
circular ref. no. SEBI/HO/MRD/DP/CIR/P/2016/135 dated December 16, 2016), are eligible
for margin trading facility.

Q7. How initial margin shall be payable by clients to Member?

A. The initial margin payable by the client to the Member shall be in the form of cash, cash
equivalent or Group I equity shares, with appropriate hair cut as specified in Section 1.1.3 of
Chapter IV of SEBI Master circular No. SEBI/HO/MRD/DP/CIR/P/117 dated October 25, 2019
(previous SEBI circular SEBI/HO/MRD/DP/CIR/P/2016/135 dated December 16, 2016), and
shall be recorded in the MTF books.
The minimum initial margin required shall be as under: -
Category of Stock Applicable margin
Group I stock available for trading in the F & O VaR + 3 times of applicable
Segment ELM*
Group I stocks other than F&O stocks VaR + 5 times of applicable
ELM*
 * For aforesaid purpose, the applicable VaR and ELM shall be as in the cash segment for a
particular stock.

Collateral in the form of securities under the margin trading facility shall be held by way of
pledge only in terms of SEBI circular SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated February
25, 2020.

Members shall ensure that the initial margin is maintained for all the open funded positions
as per the aforementioned prescribed rate at all times.

Q8. Can excess margin/collateral available in MTF ledgers be considered towards Margins of
non-MTF transactions?
A. Excess margin/collateral available in MTF ledgers cannot be considered towards Margins of
non-MTF transactions. However, in exceptional scenarios, transfers from non-MTF ledgers to
MTF ledgers can be considered towards a margin position in MTF, provided they belong to
the same clients and there are sufficient & free balances available in the non-MTF ledgers.
Any transfer of balances from non-MTF ledgers to MTF ledgers undertaken with a view to
avoid the actual settlement requirements will not be permitted. Further, any transfer of
balances from non-MTF ledger to MTF ledger for MTF trades post confirmation of client will
not be considered for computation of clear ledger balance till the settlement of trades.
Members are requested to accordingly report the clear balances of the clients under weekly
submissions of monitoring of client funds under Enhanced supervision guidelines of SEBI and
Weekly submissions of Cash & Cash Equivalent balances to the Exchange.

Q9. Is the list of group 1 Securities available on NSE website?

A. The list of Group-1 securities is available on the NSE website under the “monthly reports
tab” at the following link and downloading the report named “CM-Security Catergory Impact
Cost”: https://www.nseindia.com/all-reports

The Detail Record Format (Securities category file (CATG) is as under1:

S.No. Field Description

1. Record Type Record Type – Value is 20
2. Security Symbol Security Symbol
3. Security Series Security Series
4. ISIN ISIN of that security
Security Category applicable on that security in the following
5. Security Category2
month.
6. Security Impact Cost Security Impact Cost
1
Exchange circular NCL/CMPT/46880 dated January 01, 2021
2
Security (EQ) with Security category as “1” shall be eligible.

Q10. Equity Shares that are classified as 'Group I security' are only eligible for margin trading
facility (Collateral as well as funded stocks). What if a group 1 stock (funded/provided as
collateral) moves out of Group 1 subsequently?
A. In case of Group-1 securities pledged as collateral, Member shall be required to replace such
security, from the applicable month onwards (when the security ceases to be Group-
1security), with another form of eligible collateral (cash, cash equivalent or Group I equity
shares, with appropriate haircut).
In case of funded securities which were categorised as Group-1 at the time of purchase, the
same are to be treated as per Exchange circular ref. no. NSE/CMO/0131/2004 dated
September 9, 2004, in case they move out of the Group-1 Category.
Q11. What are the sources of funds which a Member can use to extend MTF?
A. A Member may use the following as source of funds:

1. Own Funds.
2. Borrowed funds from scheduled commercial banks.
3. Borrowed funds from NBFCs regulated by RBI.
4. Borrowings by way of issuance of Commercial Papers, subject to compliance with
appropriate RBI guidelines.
5. Borrowings by way of unsecured long-term loans from their promoters and directors,
subject to the appropriate provisions of Companies Act.

Member shall not be permitted to borrow funds from any other source except listed above.
Further, the Member shall not use the funds of any client for providing the margin trading
facility to another client, even if the same is authorized by the first client.

Q12. What is the maximum allowable exposure of the Member towards MTF?
A. The maximum allowable exposure shall be within the self-imposed prudential limits and
shall not, in any case, exceed the borrowed funds and 50% of his “net worth”. The term
“exposure” shall mean the aggregate outstanding margin trading amount in the books of the
Member for all his clients at any given point of time. The term “borrowed funds” shall mean
the amount borrowed and not the sanctioned limit of borrowings.

“Maximum allowable exposure <= [Total Borrowed Funds +(0.5*Net Worth)]”

Eg: If the networth of Member X is Rs. 3 Crores and total of borrowings is Rs.1 crore then the
total of exposure that is permitted to be provided shall not exceed Rs.2.5crores, computed as
under:

Particulars Amount
Total Networth A Rs. 3 Crores
Total amount of borrowing for MTF B Rs. 1 crore
50% of Networth C=50% of A Rs.1.5 cr. (50% of Rs. 3 crores)
Maximum exposure that can be D = (B+C) Rs 2.5 crores
provided

Q13. What shall be the total indebtedness of a Member for the purpose of margin trading?
A. Total indebtedness shall mean the aggregate of the outstanding borrowings from
Banks/NBFCs/Commercial Papers/unsecured loans from promoters or directors, at any point
of time. The total indebtedness of a Member for the purpose of margin trading shall not
exceed 5 times of its net worth.

Illustration: If the net-worth of Member X is Rs. 3 Crores, then the total indebtedness for the
purpose of MTF shall not exceed Rs. 15 crores.
Q14. What shall be the client-wise exposure limit?
A. The exposure to any single client at any point of time shall not exceed 10% of the Member’s
maximum allowable exposure. Illustrations:

Illustration -1
Particulars Amount
Member's net worth A Rs. 5 Crs.
Total amount of borrowing for MTF B Rs. 20 Crs.
Maximum allowable exposure C = (50% of A) +B Rs. 22.50 Crs
Actual exposure provided D Rs. 10 Crs.
Max exposure to any single client E = 10% of C Rs. 2.25 Crs.
Out of the total exposure of Rs. 10 crores provided during the day, exposure to any single
client shall not exceed Rs. 2.25 crores.

Illustration -2
Particulars Amount
Member's net worth A Rs. 5 Crs.
Total amount of borrowing for MTF B Nil
Maximum allowable exposure C = (50% of A) +B Rs. 2.50 Crs.
Actual exposure provided D Rs. 2 Crs.
Max exposure to any single client E = 10% of C Rs. 0.25 Crs.
Out of the total exposure of Rs. 2 crores provided during the day, exposure to any single
client shall not exceed Rs. 0.25 crores.

Q15. What all records shall be maintained by Member for MTF?

A. The Member shall maintain the following records:

1. Separate client-wise ledgers for funds and register of securities (collateral and funded
stocks) of clients availing margin trading facility.
2. Separate record of details of the funds used and sources of funds for the purpose of
margin trading.
3. Books of accounts, maintained by the Member, with respect to the margin trading facility
offered by it, shall be audited on a half-yearly basis and Member shall submit an auditor’s
certificate to the exchange within one month from the date of the half year ending 31st
March and 30th September of a year certifying, inter alia, the extent of compliance with
the conditions of margin trading facility.

Q16. Whether Members are required to open a separate demat account for funded stock under
the margin trading facility?
A. As per SEBI circular SEBI/HO/MIRSD/DOP/CIR/P/2020/28 dated February 25, 2020, funded
stocks held by the TM / CM under the margin trading facility shall be held by the TM / CM
only by way of pledge. For this purpose, Members are required to open a separate demat
account for MTF funded stock which should be tagged as ‘Client Securities under Margin
Funding Account’. Such funded stocks shall be held by the Member only by way of pledge in
the said account from the BO account of the respective client. The funded stock pledged in
‘Client Securities under Margin Funding Account’ shall not be available for pledge with any
other Bank/ NBFC.
The funded stock shall be unpledged by the Member, to the extent of the payment made by
the client, within one working day of the receipt of the payment. In case of multiple funded
 stocks, the stocks to be unpledged can be identified in terms of the internal policy of the
Member (which has been informed to the client) or as per the instruction of the client.

Q17. In case of identification of MTF trades on T+1, when should the margin be available for the
trade with the Member?

A. In case a transaction is identified under MTF by T+1 day, the minimum Margin as stipulated
for under the provisions of MTF should be available with the Member for the client on the
date when the MTF trade has been identified. An illustration is as under: -

Day Remark Amount Category Margin Requirement

Monday Trade day Rs. 1,000/- Normal Trading As per Member’s Risk
(T Day) Management policy subject to
the minimum upfront margin
prescribed by Exchange/SEBI
Tuesday Day of Rs. 1,000/- Shifted to MTF Margin should be available as
(T+1 Day) identification prescribed in SEBI circular
CIR/MRD/DP/54/2017 date June
13, 2017

Q18. What can be done if the client fails to meet the margin call made by the Member?
A. The Member may liquidate the securities if the client fails to meet the margin call made by
the Member as per the mutually agreed terms& conditions but not exceeding 5 working
days from the day of margin call. The Member shall list out the situations/conditions in
which the securities may be liquidated and include them in the terms & conditions and
“Rights and Obligations Document”.

Q19. Can Member set up its own risk management policy that will be applicable to the
transactions done under the Margin Trading Facility?
A. Yes. Further, Member may make amendments there to at any time but give effect to such
policy after the amendments are duly communicated to the clients registered under the
Margin Trading Facility.

Q20. When shall the margin trading accounts be settled?

A. Any excess collateral, in the form of cash & cash equivalent, lying in the MTF account of the
client shall be mandatorily settled on a monthly / quarterly basis, as per the client
preference, after ensuring a gap of maximum 30/90 days (as per the client mandate)
between two running account settlements. Members shall settle both MTF and Non MTF
accounts on same day for a particular client.

Further, the funded stock shall be unpledged by the Member, to the extent of the payment
made by the client, within one working day of the receipt of the payment. In case of multiple
funded stocks, the stocks to be unpledged can be identified in terms of the internal policy of
the Member (which has been informed to the client) or as per the instruction of the client.

Q21. Can the funded stocks and collaterals be comingled?

A. The stocks pledged as collateral with the Member for availing margin trading facility
(Collaterals) and the stocks purchased under the margin trading facility (Funded stocks) shall
be identifiable separately and there shall not be any comingling for the purpose of
computing funding amount.
Q22. What are the reporting requirements by the Member?
A. Once the Member has started offering margin trading facility to clients, it is mandatory to
report the details on gross exposure towards margin trading facility to the stock exchange
on or before 12 noon of the following trading day as per the format prescribed by SEBI in its
circular dated June 13, 2017 (Ref CIR/MRD/DP/54/2017) /Exchange circular dated Nov 22,
2017 (ref. no. NSE/COMP/36350).
The reporting has to be done on the following link-
https://ims.connect2nsccl.com/MemberPortal/under the tab-“Extranet Upload” - CM
segment.

Q23. If MTF is not provided to clients on a particular day, is it mandatory to do reporting for
that trading day?
A. Yes, reporting of MTF is mandatory till the time facility is not withdrawn by submitting
application for withdrawal to Exchange.

Q24. What are the consequences for non-reporting of daily margin trading file?
A. Penalty/ disciplinary action(s) shall be initiated as mentioned below for non-compliance with
respect to margin trading submissions:
➢ For one instance of non-reporting in a month- Rs. 1,000/-
➢ For two to five instances of non-reporting in a month- Rs. 2,000/- per day for the no. of
the instances
➢ For more than five instances in a month- Withdrawal of Margin Trading Facility.

If the trading facility of the Member is withdrawn due to non-submission of MTR for more
than 5 instances in a month then the Member cannot provide funding to the new clients and
further funding to existing clients. The Member can provide funding only after taking prior
approval from Exchange after cooling period of 6 months from the date of withdrawal.

Q25. Can the securities pledged as collateral under the margin pledge/repledge mechanism with
the Member for availing margin trading facility and normal trades be comingled?
A. The Member may keep the securities pledged as collateral/margin for availing margin
trading facility and normal trades under the same “Client Securities Margin Pledge Account”
opened for the purpose of margin pledge/repledge. However, Member shall record the
securities pledged as collateral for transactions undertaken under Margin Trading facility
(MTF) in the MTF books.

Q26. Can the Member re-pledge the securities pledged by the clients as margin collateral
under MTF with clearing corporation/clearing Member?
A. Yes, Members may re-pledge the securities pledged by the clients as margin collateral
under MTF with clearing corporation/clearing Member.

Q27. Can a Member collect 20% of the transaction value as margin for MTF trades w.r.t. margin
requirement in cash market segment of clearing corporation as stipulated by SEBI?
A. No, Members need to collect the upfront margin as per the Margin Trading facility
guidelines issued by SEBI/Exchange from time to time even if the upfront margin amount in
such case is more than the margin requirement in cash market segment of clearing
corporation i.e. 20% of the transaction value.
Q28. Which circulars shall be referred for MTF?
A. The list of circulars issued by SEBI/NSE from time to time for MTF is listed below:

S.No. Circular Ref. no. Issued Date Subject

by
1 CIR/MRD/DP/54/2017 SEBI June 13, 2017 Comprehensive Review of Margin
Trading Facility
2 NSE/COMP/35125 NSE June 15, 2017 Comprehensive Review of Margin
Trading Facility
3 NSE/COMP/35260 NSE June 30, 2017 Rights and Obligations for the
purpose of margin trading facility.
4 CIR/MRD/DP/ 86/2017 SEBI Aug 01, 2017 Margin Trading Facility- Clarification

5 NSE/COMP/35509 NSE Aug 01, 2017 Uploading of Daily margin trading

files
6 NSE/COMP/35521 NSE Aug 03, 2017 Margin Trading Facility – Clarification.

7 NSE/COMP/36350 NSE Nov 22, 2017 Uploading of Daily margin trading

files
8 NSE/INSP/39732 NSE December 21, Indicative Penalty structure for
2018 Margin Trading facility