The Futures Industry Association (FIA), a global association representing brokers and derivatives market participants, has raised significant concerns over SEBI's proposal to revise the variable net worth framework for stock brokers. According to Business Standard, FIA argues that client balances should not be treated as a proxy for broker risk and warns that higher capital requirements could increase costs for market participants. The association contends that the proposed framework should be based on actual risks faced by brokers rather than risks already addressed through existing safeguards such as upfront margins, collateral controls, and upstreaming of client funds.
At present, draft proposals released by SEBI in April link broker net worth thresholds to factors such as client balances and the size of the active client base. As reported by Essential Business Intelligence, market participants have pushed back against this approach, arguing that such benchmarks are better suited to large equity brokerages and could stifle smaller, specialised bond intermediaries. Industry players are seeking lower net worth thresholds calibrated to the scale of corporate bond markets, where liquidity and retail participation remain limited compared with equities.
SEBI has proposed linking brokers' variable net worth requirements to the scale and risk of their operations based on metrics such as aggregate client funds, the number of active clients, and clients onboarded through authorised persons (APs). According to Business Standard, the regulator proposed an additional net worth requirement of ₹50 lakh for brokers with 10,000-50,000 active clients and a further ₹50 lakh for every additional 50,000 clients. For clients sourced through APs, the requirement would range from ₹5 lakh for up to 2,500 clients to ₹50 lakh for every additional 10,000 clients beyond the initial threshold. SEBI has stated that these changes are intended to serve as a 'second line of defence', ensuring brokers maintain sufficient capital to cover risks not addressed through margin requirements.
FIA warned that increasing net worth requirements based on client deposits could result in capital being held against exposures that have already been substantially mitigated. The association argued that the proposal risks conflating client-related risk with proprietary trading risk, despite the two being conceptually distinct. According to Business Standard, FIA warned that higher capital requirements could ultimately be passed on to investors through increased trading costs and may disproportionately affect smaller intermediaries. The association instead suggested targeted measures such as enhanced concentration margins for large or correlated positions and explicit capital-linked limits on proprietary trading activity.
