How is Margin Funding for Intraday F&O possible?

Isn’t it clear that the margin money for F&O trades needs to be in Client’s own account and the only way new money can flow in and out of a clients account is via a linked bank account? If so, how are some brokers providing intraday loans (with interest) to clients to provide leverage basically finding a loophole in the peak margin system? Is this legal as per SEBI for now?

@nithin @siva

For fno there are no loans provided, it will be only for equity buying called margin funding and we are working on it.

But there are e-mails from Motilal Oswal and other brokers that they will be providing such facilities. Plus this twitter thread:

This thread is very clear in terms of loan being provided at an interest, and the current 4x limit will be counted on the loan on top of your own capital, stretching the leverage to 10x

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This is giving out loans from their NBFC arm and not from broking arm. This is as good as one taking loan from anywhere and adding that money to your trading account but in these cases I think as they have both broking arm and nbfc arm it may look as seamless integration. Money has to be moved to your trading account for this to happen. @nithin can you confirm.

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Yeah, looks like money goes from NBFC to a bank on which POA is with NBFC. From there they transfer to trading and then you can use it. But this is regulatory very grey. I don’t think they will be publicly even acknowledging something like this.

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Looks interesting

if it possible legally it will be hit

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I don’t think this is gonna remain allowed for a long time. SEBI is notorious for being a fun spoiler. They or some other regulatory body perhaps could come out and say that credit cannot be provided for the purposes of speculation and that will be the end of it.

Does it not negate what SEBI was trying to do? They are just rerouting the leverage essentially finding a loophole or am I getting SEBI’s intentions wrong here?

Plus not every broker has a tie-up with NBFCs, and hence they might end up taking this to SEBI as well I guess.

It is not possible to do this at scale hence they kept like 1 cr as minimum, as said by Nithin this is a grey area and not in spirit of the law.

There’s an update on the thread. the minimum value now is 25 Lakhs. Still a decently high threshold for Indian traders.

I guess they may provide this additional margin for overnight positions as well.

This is a loan, one can take loan and add money to trading account, doesn’t matter it is intra of carry forward as peak margins are in effect now.

I guess yes, but I don’t think Brokers would want that as the overnight risk is too high for them.

@siva Wanted to understand how they would manage risk as the money is in my trading account, the broker now has no authority on my trades, so if I want to, I am free to lose all my money and I am answerable to the NBFC, the broker I guess cannot square off the trades if I lose my initial capital? or can there be an agreement giving them an authority?

As broker and nbfc were same in this case, I mean they are connected I think broker knows where to set risk controls and which segments to allow to trade etc.

It will be.

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