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The Securities and Exchange Board of India (Sebi) has unveiled a significant new framework for calculating stock brokers’ networth, aiming to bolster financial stability by linking requirements to client funds and active client numbers, moving beyond the less relevant existing system.
Photograph: Francis Mascarenhas/Reuters
Key Points
- Sebi proposes a new networth calculation framework for stock brokers, replacing the outdated method tied to client cash balances.
- The revised approach considers both client funds handled and the number of active clients, including those onboarded via authorised persons.
- The new formula includes 10 per cent of the average client credit balance over six months, plus graded requirements based on the number of direct and authorised person clients.
- The aim is to ensure brokers maintain stronger financial buffers commensurate with their operational size and risks, acting as a ‘second line of defence’ after margins.
- Public comments on the draft proposal are invited until May 15, 2026.
The Securities and Exchange Board of India (Sebi) on Friday proposed a new framework for calculating the networth requirement for stock brokers.
In a consultation paper released on Friday, the regulator said the current method — linked to 10 per cent of the average daily client cash balances retained by brokers — has become less relevant following the implementation of the upstreaming framework.
Under this system, client funds are largely transferred to clearing corporations, leaving minimal balances with brokers.
To address this, the regulator has proposed a revised approach that factors in both client funds handled and the number of active clients serviced.
Sebi said that networth acts as a “second line of defence” after margins and should be robust enough to absorb risks not covered by margins.
Strengthening Financial Safeguards
“It is imperative that the second line of defence should be strengthened by making the networth requirement commensurate with the size and risks of operations of a broker in terms of aggregate clients” funds with broker, number of direct active clients as well as number of clients through authorised persons,” said Sebi in a consultation paper.
Under the proposal, variable networth would be calculated as a composite of multiple parameters.
These include 10 per cent of the average credit balance of all clients over the preceding six months.
Also, Rs 50 lakh for brokers with more than 10,000 and up to 50,000 active direct clients, with an additional Rs 50 lakh for every incremental 50,000 clients (or part thereof).
Revised Norms and Public Consultation
Furthermore, a graded requirement for clients onboarded through authorised persons—Rs 5 lakh for up to 2,500 clients, Rs 25 lakh for more than 2,500 and up to 10,000 clients, and Rs 50 lakh for every additional 10,000 clients (or part thereof) across exchanges.
The revised norms aim to ensure that brokers servicing a larger client base maintain a proportionately higher financial buffer, said market players.
The proposal follows recommendations from a working group comprising exchanges such as the National Stock Exchange of India and the BSE, along with broker associations.
Sebi has invited public comments on the draft until May 15, 2026.
Key Changes in Detail
The current method, linked to 10 per cent of average client cash balances, is no longer relevant after the upstreaming of funds to clearing corporations.
The new approach factors in both client funds handled and number of active clients, making requirements more risk-sensitive.
The proposed formula includes 10 per cent of average client credit balance (6 months), plus slabs based on direct clients and those onboarded via authorised persons.
A higher client base will translate into higher networth requirements, ensuring brokers maintain stronger financial buffers. Sebi said networth is a “second line of defence” beyond margins and must reflect the scale and risk of operations.
