Stockbrokers have approached the Securities and Exchange Board of India (Sebi) to object to a proposed rule that would require them to hold extra capital based on client money they no longer actually keep with them, according to three people aware of the matter.
The regulator has proposed changes to the so-called variable net worth — a capital cushion every broker must maintain as a buffer against risks from its client business. Currently, this cushion is set at 10% of the average daily cash balance a broker holds on behalf of clients.
Sebi has proposed a change to that formula. Under a consultation paper issued in April, the cushion would instead be based on 10% of clients’ average credit balance over the previous six months, plus an extra amount depending on how many active clients a broker serves, including those brought in through authorized persons.
Brokers say the new formula doesn’t reflect reality. Since 2023, brokers have been required to nearly all client funds directly to clearing corporations by the end of each trading day. Calculating their capital requirement based on a broader client-balance figure, brokers argue, could force them to set aside capital against funds that have already moved out of their hands.
“Sebi’s consultation paper proposes that 10% of the average credit balance be considered while calculating variable net worth. This becomes difficult for brokers as the balance is upstreamed to the clearing corporation. This issue was discussed in the Intermediary Advisory Committee (IAC) meeting on September 11,” one of the people said, speaking on condition of anonymity.
An emailed query to Sebi did not elicit a response.
Upstreaming framework
The upstreaming framework has also changed the basis on which variable net worth is calculated.
When introduced variable net worth through an amendment to the Stock Brokers Regulations in 2022, the requirement was linked to the average daily cash balance of clients retained by a broker. The requirement was set at 10% of the average daily cash balance across segments and exchanges during the previous six months.
The April 2026 consultation paper said the introduction of the upstreaming framework has resulted in a minimal amount of client cash being retained by brokers. Sebi therefore proposed moving from cash balances retained by brokers to average client credit balances as a measure of the scale of their client-related obligations.
Credit balance refers to the total funds belonging to clients that are held by the , including both settled cash and amounts from recent transactions that may not yet be settled. This is broader than the cash balance, which includes only the cleared, settled cash available in client accounts.
Brokers, however, say the proposed approach would also mean that brokers would be required to set aside more capital than they have with them.
“All balances with a broker are upstreamed to the clearing corporation and if 10% of the average credit balance is considered for net worth, then it would become difficult for the broker to maintain it. We have told Sebi that considering 10% of the money that the broker actually holds would be a better way to calculate net worth,” another official said, also on condition of anonymity.
The proposed framework also introduces a component based on the number of active clients. Brokers with more than 10,000 and up to 50,000 direct active clients would be required to maintain an additional ₹50 lakh of net worth. A further ₹50 lakh would be required for every additional 50,000 active clients, or part thereof.
For clients serviced through authorised persons, the proposed requirement is ₹5 lakh for up to 2,500 active clients, ₹25 lakh for more than 2,500 and up to 10,000 clients, and ₹50 lakh for every subsequent 10,000 active clients or part thereof.
An alternative on the table
“A more effective approach would be to link variable net worth to the broker’s operational scale and risk exposure, rather than relying only on client cash balances. This could include a combination of aggregate client funds handled, active client count, trading volumes, leverage and exposure, and the nature of services offered,” said Raj , executive director at EPP Securities.
He added that a risk-based formula that considers both the size and complexity of a broker’s operations would help ensure that capital requirements are proportionate, while avoiding an undue burden on smaller brokers.
Sebi has said the proposed changes are aimed at ensuring that brokers serving a larger number of clients maintain a larger financial cushion to absorb losses and unforeseen risks.