India’s Margin Trading Facility (MTF) lets a broker fund part of an eligible share or equity-ETF purchase. You provide an initial margin in cash, cash equivalent or eligible pledged securities; the broker finances the balance and charges according to its current agreement. The position is marked to market every day. If your available margin falls below the required level, the broker issues a margin call and may liquidate securities when the conditions in its MTF agreement and the exchange Rights and Obligations Document are met.
Three items must be kept separate: your margin contribution, securities pledged as collateral and securities bought with broker funding. They have different treatment under the current SEBI framework, so holding shares in your account does not by itself prevent a shortfall or a forced sale.
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What MTF is—and what it is not
MTF is a broker-provided loan-like arrangement for buying specified securities. It increases purchasing power, but it also creates an obligation to maintain margin and repay the funded amount, whether the share price rises or falls. The applicable framework is set out in SEBI’s consolidated master circular (2023): SEBI master circular, 2023.
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The three moving parts in an MTF position
| Part | What it means | What to verify |
|---|---|---|
| Client margin | The value you contribute toward the purchase. It can be cash, cash equivalent or eligible pledged securities after the applicable haircut. | The broker’s required percentage or amount, any extra buffer it demands and how it values each form of margin. |
| Eligible collateral | Specified Group I equity shares and Group I equity ETF units that are pledged in the depository system. Their market value is reduced by a risk haircut before being counted. | Whether the security is on the broker’s current list, the haircut, pledge charges and the process for releasing the pledge. |
| Broker funding | The amount the broker finances for the eligible purchase. You remain exposed to the full market movement while owing the funded amount and applicable charges. | Funding rate, interest calculation, repayment rules, corporate-action treatment and liquidation conditions in the MTF agreement. |
A broker can impose stricter requirements than the regulatory minimum after assessing its own risk. Therefore, a security that technically qualifies under SEBI’s category may still be unavailable for MTF at a particular broker, or may require more client margin.
How the initial margin is calculated
The current SEBI formula uses the cash-segment Value at Risk (VaR) and Extreme Loss Margin (ELM) for the security. It is not a single nationwide down-payment percentage.
| Eligible security category | SEBI initial-margin formula |
|---|---|
| Group I equity shares that are available for trading in the futures and options segment | Cash-segment VaR + three times the applicable ELM |
| Other Group I equity shares and equity ETF units | Cash-segment VaR + five times the applicable ELM |
VaR and ELM inputs vary by security and can change when exchange risk parameters change. If you post securities rather than cash, the broker applies the relevant haircut, so the amount credited as margin is less than (or otherwise adjusted from) the quoted market value. The broker may also require additional margin.
Older articles often quote a flat 50% initial margin and 40% maintenance margin. Those figures belong to the historical 2004 framework and should not be presented as the current consolidated MTF computation. The historical circular is available here for context: SEBI’s 2004 circular.
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Which shares can be used as collateral?
The cited MTF rules cover Group I equity shares and Group I equity ETF units. “Listed share” is therefore not enough: a security outside Group I, or one removed from a broker’s approved list, may not count. Eligibility and the applicable VaR, ELM and haircut should be checked on the day you place the trade.
When securities are used for margin, they are provided through a margin pledge in the depository system rather than an informal transfer to the broker. SEBI’s June 2025 pledge and re-pledge circular set the mechanism, and an August 2025 implementation notice extended the relevant implementation date from September 1 to October 10, 2025. The notices establish the regulatory timeline, but the buttons and confirmation screens differ by broker:
Read the pledge confirmation carefully: it should identify the securities, the pledge purpose and the period or conditions for release. Keep records of the pledge request and depository confirmation.
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Pledged collateral is not the same as an MTF-funded share
SEBI requires collateral securities and securities purchased under MTF (often called funded stocks) to be identifiable separately. They cannot be mixed together to calculate the amount the broker has financed. Both are marked to market daily, but their contribution to additional exposure is different.
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| Feature | Pledged collateral | MTF-funded stock |
|---|---|---|
| Purpose | Supports your margin obligation. | Is the security bought using the broker’s funding. |
| Valuation | Market value reduced by the applicable haircut. | Marked to market as the position changes. |
| Effect of a price increase | Higher value may support more exposure, subject to the haircut and broker rules. | The increase cannot be used to provide further exposure under the cited framework. |
| Identification | Must be recorded separately from funded stocks. | Must be recorded separately from collateral. |
This distinction explains why an account can still show many shares while having a margin deficit. A fall in a pledged collateral security reduces usable collateral; a fall in the funded stock reduces the equity supporting the broker’s advance. The number of shares alone does not tell you whether the account is adequately margined.
How daily mark-to-market creates a shortfall
At the end of each valuation cycle, the broker revalues the collateral and the funded position. The usable collateral is the post-haircut value, not simply the closing price multiplied by the number of shares. The funded position’s market value and the amount owed to the broker are tracked separately.
Consider an illustrative, non-regulatory example. You buy eligible shares worth ₹1,00,000, contribute ₹40,000 and receive ₹60,000 of broker funding. If the shares fall, the market value supporting the ₹60,000 obligation shrinks. If you also pledged other shares, a fall in those shares can reduce their post-haircut collateral value at the same time. Once the account’s available margin is below the broker’s required level, the broker has a shortfall even though the securities remain in the account. The exact trigger depends on the current risk values and the broker’s agreement, not on this illustration.
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- Revaluation: The broker marks collateral and funded securities to market and recalculates the required margin.
- Shortfall identification: If the prescribed margin is no longer maintained, the broker records a deficit.
- Margin call: The broker asks you to restore margin, normally by adding cash, pledging eligible securities or reducing the position, using the communication method in your agreement.
- Failure under the stated conditions: If you do not meet the call within the operative deadline or other conditions specified in the documents, the broker may liquidate securities to reduce the exposure.
- Application of proceeds: Sale proceeds are applied according to the MTF agreement and applicable settlement rules. Any remaining debit or credit must be reconciled with the broker.
The master circular requires brokers to list the situations and conditions for liquidation in the exchange Rights and Obligations Document. It states: “The stock broker shall list out situations/conditions in which the securities may be liquidated and such situations/conditions shall be included in the ‘Rights and Obligations Document’.” The same section adds: “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 4.4.1 above.” Both statements appear in the SEBI master circular.
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There is no single SEBI-mandated number of hours, universal notice format or identical order sequence for every broker. The cure deadline, whether the broker sells collateral or funded stock first, how orders are routed and what happens during a trading halt must be checked in the broker’s current MTF agreement and the relevant Rights and Obligations Document.
Can a broker sell your shares without asking again?
A separate fresh instruction is not necessarily required for every liquidation. By entering the MTF agreement, you accept the documented liquidation conditions. If a margin call is not met in the applicable circumstances, the broker can act under those conditions. That does not give the broker an unrestricted right to sell whenever it chooses: the master circular prohibits liquidation or other use of client securities outside the stipulated situations.
Because timing matters, keep current contact details with the broker, enable margin alerts and do not assume that receiving an alert creates a guaranteed grace period. A technical failure, a fast price move or a non-trading day can affect how quickly you need to restore margin, subject to the contract’s terms.
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MTF compared with other kinds of margin
| Product or requirement | What is margined | Typical purpose |
|---|---|---|
| MTF | A broker-funded cash-market purchase of eligible shares or equity ETFs. | Hold an eligible security with part of the purchase price financed by the broker. |
| Exchange or clearing margin | Obligations of trading members and clients arising from trades and settlement. | Protect the market’s clearing and settlement system. |
| Intraday leverage | A broker’s same-day leveraged trade product. | Open and close a position within the broker’s stated intraday rules; it may be squared off near the deadline. |
| Derivatives margin | Futures and options obligations, including risk and exposure components. | Cover the changing value and potential loss of a derivative contract. |
Rules for one category should not be transplanted to another. For example, an intraday square-off time is not an MTF liquidation deadline, and an options margin percentage is not the MTF initial-margin formula.
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Broker-level limits and risk controls
The 2023 SEBI framework also places limits on a broker’s MTF book. The named regulatory limits include:
- Total MTF indebtedness of the broker is capped at five times the broker’s net worth.
- The broker’s maximum allowable MTF exposure is constrained by its self-imposed prudential limit and a ceiling tied to borrowed funds and 50% of net worth.
- Exposure to one MTF client is capped at 10% of the broker’s maximum allowable exposure.
These are limits on the intermediary’s business, not a promise that an individual client can borrow a particular multiple. Your available amount still depends on the security, haircut, margin requirement, account history and the broker’s own risk policy.
What to check before you activate MTF
- Read both documents: Obtain the current MTF agreement and the exchange Rights and Obligations Document. Mark the margin-call deadline, permitted liquidation situations, communication channels and order-execution terms.
- Confirm eligibility: Check that each proposed share or ETF is currently Group I and accepted by the broker. Ask whether F&O status changes the VaR-plus-ELM formula.
- Check valuation: Record the current VaR, ELM and haircut shown by the broker. Ask how often those values can change and whether extra broker margin applies.
- Price the funding: Review the interest or funding charge, minimum charges, taxes, pledge fees, repayment date and treatment of corporate actions. The rate and fee schedule are broker-specific.
- Plan a buffer: Do not use the maximum displayed buying power merely because it is available. Leave room for a price gap, a haircut change or a simultaneous fall in collateral and funded stock.
- Monitor daily: Compare the broker’s collateral value, funded amount, available margin and margin calls each day. Keep cash available if you need to cure a deficit quickly.
- Know the exit: Learn how to repay the funded amount, sell the funded stock, release a pledge and obtain a final statement showing that the position is closed.
Common mistakes and how to correct them
- “Every share can be collateral.” Correction: only the specified eligible Group I shares and equity ETF units qualify, subject to the broker’s list and haircut.
- “The share price is the collateral value.” Correction: usable value is reduced by the applicable haircut and can change with risk parameters.
- “If the funded share rises, I can borrow more against that rise.” Correction: the cited framework does not allow the rise in funded-stock value to provide further exposure.
- “There is always a fixed 24-hour cure period.” Correction: the operative deadline is in the current broker documents; SEBI’s high-level framework does not set one universal window.
- “A broker can sell anything at any time.” Correction: liquidation conditions must be documented, and securities cannot be liquidated or otherwise used outside those conditions.
- “MTF is just intraday leverage held overnight.” Correction: MTF is a distinct funded cash-market product with its own eligible securities, margin calculation and documentation.
Where to find the operative answer
SEBI’s master circular explains the regulatory architecture, but your practical rights and deadlines are contractual and broker-specific. Before placing an MTF order, download the latest MTF terms, the exchange Rights and Obligations Document and the broker’s eligible-security and haircut lists. Check the date on each document, because eligibility, VaR, ELM, haircuts, charges and internal risk limits can change.
If a margin call or liquidation appears wrong, save the call notice, account ledger, pledge confirmation, order numbers and time stamps. Raise the issue through the broker’s formal grievance channel and refer to the exact clause governing the liquidation. Do not rely on a generic statement that a broker “always” or “never” needs permission: the applicable conditions are the ones disclosed in the current documents.
