NSE Flags Broker Violations in Margin Trading, Client Fund Handling and Cybersecurity

The National Stock Exchange (NSE) has flagged multiple compliance violations by brokers and authorised persons (APs), including inadequate margin collection, misuse of client accounts, delayed fund settlements and weak cybersecurity controls, following inspections conducted between October 2025 and March 2026.

The exchange found instances where brokers extended margin trading facilities (MTF) against ineligible securities, including stocks outside the eligible Group I category.

It also identified cases in which brokers failed to collect adequate margins from clients, despite regulatory requirements to obtain margins in cash, cash equivalents or eligible securities after applying prescribed haircuts.

MTF Book Size Rises to ₹1.48 Lakh Crore

The findings come amid rapid growth in the margin trading segment. According to data compiled by CareEdge Ratings from NSE and BSE, the MTF book size increased from around ₹96,000 crore in August 2025 to ₹1.48 lakh crore in August 2026.

The NSE also found that brokers delayed or failed to issue daily margin statements to clients. Several statements contained incomplete or inaccurate information, while some brokers incorrectly reported margin collections and mark-to-market (MTM) losses to the exchange.

Delays in Fund Settlement, Reporting Lapses

The inspections revealed cases in which brokers failed to settle client funds within prescribed timelines. The exchange also found material discrepancies in client retention statements.

In some instances, brokers paid out amounts exceeding clients' available credit balances. The NSE also flagged cases where brokers passed on penalties imposed for short collection of upfront margins to their clients.

Brokers were also found to have failed to send mandatory SMS and email alerts informing clients about fund transfers during running-account settlements.

Authorised Persons Violated Client Protection Rules

The NSE identified several prohibited practices involving authorised persons, who act as intermediaries between brokers and clients.

These included directly receiving or paying client funds, using clients' trading credentials to execute trades without proper authorisation and obtaining blanket permissions to trade on their behalf.

Some authorised persons were also found executing trades to generate brokerage income, promising fixed or assured returns, entering into profit-sharing arrangements and providing portfolio management services without authorisation.

The findings highlight compliance gaps in margin trading, client fund management and intermediary conduct across the inspected entities.