The Securities and Exchange Board of India (SEBI) has proposed a significant overhaul of the way stock brokers calculate their variable net worth, seeking to better align capital requirements with the scale and nature of their operations.
The regulator said the existing framework, introduced in 2022, may no longer be effective following structural changes in the handling of client funds.
Client funds
Under current rules, brokers are required to maintain variable net worth equivalent to 10 per cent of the average daily cash balance of clients retained over the previous six months. However, with the introduction of the upstreaming framework, most client funds are now transferred to clearing corporations, leaving minimal balances with brokers.
“Consequently, calculation of variable net worth of the brokers based on availability of funds with them may not be an effective way,” the regulator said in the draft paper on Friday.
To address this gap, SEBI has proposed a revised methodology that factors in multiple parameters, including average client credit balances and the number of active clients serviced by brokers, both directly and through authorised persons (APs).
Net worth acts as a “second line of defence (first being margin)” and must be robust enough to absorb risks not covered by margins, SEBI said. “It is imperative that the second line of defence should be strengthened by making the net worth requirement commensurate with the size and risks of operations,” it said.
Credit balance
Brokers would need to maintain variable net worth based on an aggregate of metrics. These include 10 per cent of the average credit balance of clients over six months, along with fixed slabs linked to the number of active clients. For instance, brokers with more than 10,000 direct clients would be required to maintain an additional ₹50 lakh, with incremental requirements for larger client bases.
Similarly, client accounts routed through authorised persons would attract separate capital requirements, starting from ₹5 lakh and scaling up based on volume.
“The intent is to ensure that brokers serving a large number of clients have a sufficient financial cushion to absorb losses or unforeseen circumstances,” the regulator said.
The move follows recommendations from a working group comprising stock exchanges and broker associations. Market participants have until May 15, 2026, to submit their comments on the proposal.