NSE flags gaps in margin trading facility and client fund handling

NSE inspections found brokers extending margin trading against ineligible securities, mishandling client funds and failing to comply with cybersecurity and surveillance norms.

Following recent inspections, the National Stock Exchange (NSE) flagged instances where brokers failed to collect adequate margins for margin trading facility (MTF) transactions and extended the facility against ineligible securities.

 

The observations cover the period from October 2025 to March this year.

 

The exchange said that some brokers failed to collect adequate margins — in the form of cash, cash equivalents or Group I equity shares — with the appropriate haircut. Others extended MTF against securities outside Group I, which are ineligible for the facility.

 

The circular also flagged lapses in handling client money. These lapses included payouts to clients exceeding their available credit balances, failure to settle client funds, and failure to upstream clear credit balances to the clearing corporation within the specified timelines.

 

 

Some members pledged fully paid-up securities in the client unpaid securities pledgee account, invoked client securities in excess of debit balances or funded client transactions. Some also passed on penalties for short collection of upfront margins to clients.

 

Regarding authorised persons, the NSE observed that some were receiving funds from or making payments to clients, while others had obtained clients’ user IDs and passwords to trade on their behalf.

 

Other lapses included offering assured returns, mis-selling and providing unauthorised portfolio management services. In some cases, trading terminals were not found at the reported locations.

 

Other lapses included submitting incorrect data under risk-based supervision and in annual returns, delays in issuing contract notes, and allowing trading in a minor’s account. Some members also failed to conduct surveillance of client trading.

 

On cybersecurity, the NSE cited instances where two-factor authentication was not enabled or validated on critical systems, inadequate password policies and a lack of encryption for data at rest. It also flagged the use of generic IDs with privileged access and the absence of web application firewalls for internet-facing infrastructure.

 

The NSE advised brokers to implement systems and procedures to strengthen compliance.