In response to a surge in volatility in equity markets, several domestic broking firms have decided to increase margins on the margin trading facility (MTF), also known as the buy now, pay later (BNPL) service, according to Moneycontrol report.
As per the report, the move is driven by concerns over sharp stock-specific falls and the upcoming elections.
Over the past week, major brokerage firms, such as IIFL Securities, ICICI Direct, Angel One, 5Paisa, and Samco Securities, have all increased margins on the MTF facility, the report said quoting sources.
On the other hand, Dhan has temporarily halted all fresh MTF buying, citing expectations of heightened market volatility due to geopolitical tensions and upcoming elections.
CNBC-TV18 also reached out to these brokers for comments but received no response. The story will be updated once their comments are obtained.
As per experts, the liquidity risk associated with the MTF rises during sudden market falls. Margin calls are issued to clients, and if additional funds cannot be provided, the position may be squared off or collateral sold.
What is MTF?
MTF is an arrangement where investors borrow funds from brokers to purchase stocks.
This facility allows investors to put up a small upfront amount called an 'initial margin' and take exposure worth multiples of that amount.
Different stocks have different margin requirements specified by stock exchanges, but brokers can charge more based on the liquidity and volatility of the underlying stock.
While all brokers provide margin trading facilities for intraday trades, MTF is necessary for those seeking leverage on a weekly or monthly price trend.
(Edited by : Shoma Bhattacharjee)
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