The Securities and Exchange Board of India (SEBI) has proposed a major revision in the methodology for stock brokers to calculate their variable net worth. This initiative aims to align capital requirements more accurately with brokers’ operational scale and nature.
SEBI indicated that the existing framework, established in 2022, may no longer be effective due to structural changes in the management of client funds. Currently, regulations mandate brokers to maintain a variable net worth equivalent to 10 percent of the average daily cash balance held for clients over the past six months. However, with the introduction of the upstreaming framework, a significant volume of client funds is now transferred to clearing corporations, resulting in minimal cash balances remaining with brokers.
The regulator noted in a draft paper that calculating brokers’ variable net worth based solely on their available funds may not adequately reflect the current operational landscape. To bridge this gap, SEBI has proposed a new methodology that considers multiple factors, such as the average credit balances of clients and the number of active clients handled by brokers, either directly or through authorized persons (APs).
Net worth serves as a “second line of defense,” alongside margin requirements, and must be sufficiently robust to cover risks not addressed by margins, SEBI stated. The regulator emphasized the need for net worth requirements to be proportionate to the size and risks associated with broker operations.
Under the proposed changes, brokers would need to maintain a variable net worth based on a composite of metrics, which would involve 10 percent of the average credit balance of clients over a six-month period. Additionally, fixed capital requirements would be linked to the number of active clients; for instance, brokers with more than 10,000 direct clients would need to maintain an extra ₹50 lakh, with increasing requirements for larger client bases. Client accounts managed through authorized persons would also incur separate capital demands, beginning at ₹5 lakh and rising with increased volumes.
SEBI noted that the objective is to ensure that brokers serving a significant number of clients possess adequate financial resources to manage potential losses or unexpected situations. This initiative follows recommendations from a working group formed with input from stock exchanges and broker associations. Market participants have until May 15, 2026, to submit feedback on this proposal.
Published on April 24, 2026.
