Margin funding book sees highest liquidation in a day

It contributed to sharp intraday volatility on Friday, when the Nifty swung 415 points (1.85%) between a low of 22,372 and a high of 22,787 before settling 0.4% lower at 22,600, according to Kruti Shah, quant analyst at Equirus. The combined NSE and BSE margin trading facility book declined by almost ₹3,000 crore on a net basis to ₹1.51 trillion on Friday from ₹1.54 trillion a day earlier, according to the portal.

The funded stocks which saw liquidation or square off by brokers included PC Jewellers ( ₹78 crore), Infosys ( ₹17 crore), Reliance Industries ( ₹34 crore), HDFC Bank ( ₹42 crore) and BSE ( ₹46 crore). "We had provisional buying by both FPI (foreign portfolio investors) and DII (domestic institutional investors), proving that the MTF book drawdown was responsible for the intraday volatility," said SK Joshi, consultant at Khambatta Securities.

FPIs made provisional net purchases of cash shares worth ₹888 crore, while DIIs bought ₹3,235 crore on Friday, according to exchange data, absorbing the liquidation of client positions by brokers. "Higher crude prices induced by persisting escalation in West Asia drums up volatility in emerging market stocks, with foreign investors selling either in the cash or derivatives segments. This especially hits clients using leverage," Joshi said.

Brent crude rose 2.8% to $111.7 a barrel on Friday. MTF involves brokers funding clients to buy stocks, with brokers providing a large part of the margin required for a purchase and clients putting up the rest as a haircut. Typically, brokers fund 60-75% of the purchase value, depending on the stock's volatility, in exchange for annualized interest of 9.5-12%. The client buys the stock hoping to benefit from an appreciation in its value, while the broker earns interest income on the funding.

If a stock falls, the broker makes a margin call, asking the client to provide additional margin or top up the haircut. If the client provides the additional margin, the position is retained. Failure to top up forces the broker to square off the client's position. Systemic risk is contained by the sizeable haircut borne by the client. The MTF book is dominated by the NSE, which accounts for 95.1% of the total, or ₹1.43 trillion, with the BSE accounting for the rest.

Brokers have funded positions in 644 actively traded stocks on the NSE and 197 stocks on the BSE, according to mtf.trading. While Friday saw the biggest net outflow from the MTF book, the largest inflow occurred on 1 October 2025, when funding rose by ₹5,150 crore after the Monetary Policy Committee left its benchmark lending rate unchanged, driving a 0.9% rally in the Nifty. Although the total MTF book is equivalent to about 1.5 days of turnover on the NSE, the book has grown 36% over the past year.

This comes amid regulatory curbs on equity options trading and the government's decision to raise the securities transaction tax on futures by 150% and on options by 50%, effective April this year. In comparison, the average daily outstanding value of index options stood at ₹15 trillion last month, according to the NSE, highlighting the significantly larger scale of exposure in options trading than in MTF.