NSE flags brokers for MTF violations, including inadequate margins and funding against ineligible stocks, lapses in monitoring of APs

The findings cover several areas, including margin collection, client-fund settlement, terminal operations, record maintenance, KYC, exchange reporting and cybersecurity. MTF and Margin related issues Under MTF, brokers must collect adequate margins in the form of cash, cash equivalents or Group I equity shares, after applying appropriate haircuts. The exchange found instances where brokers provided the facility against securities that were not eligible.

NSE also found that brokers had not collected adequate margins. As per BSE and NSE data compiled by Care Edge Ratings, MTF book size has been growing continously, in August 2025 the size was Rs 96,000 crore, which has jumped to Rs 1,48,000 crore in August 2026. The inspection findings also flagged delays or failures in issuing daily margin statements to clients, along with statements containing incorrect or incomplete information.

Other deficiencies included incorrect reporting of margin and mark-to-market (MTM) loss collection from clients to the exchange, non-settlement of client funds and material discrepancies in retention statements. The NSE also identified instances where brokers paid out funds exceeding clients' available credit balances and passed on penalties imposed for short collection of upfront margins to clients.

Members were also found to have failed to send SMS and email notifications detailing fund transfers at the time of running-account settlement of client funds. AP-related violations The exchange flagged authorised persons receiving or paying funds to clients and other individuals or entities, using clients' user IDs and passwords to conduct unauthorised trades, and seeking authorisation to trade on clients' behalf.

Other findings included trading in client accounts to generate brokerage, offering fixed or assured returns, profit-sharing arrangements, account handling and unauthorised portfolio management services. The NSE also identified unapproved advertisements and promotional material, missing pre-trade confirmations or order-placement evidence, incorrect reporting of clients mapped to APs, and failure by trading members to inspect APs as prescribed.

In some cases, AP terminals were not located at the addresses reported to the exchange or were operated by individuals not permitted under applicable requirements. KYC, reporting and record maintenance The exchange flagged incomplete client registration documents, missing mandatory information, non-compliance with SEBI's technology-based KYC requirements and failure to provide completed registration documents to clients free of charge within seven days of uploading their Unique Client Code (UCC).

Other deficiencies included missing or incorrect client contact details in the UCC database, failure to mark clients inactive after 24 months without trading, and sending contract notes to multiple clients using the same email address without establishing acceptable relationships. The NSE also found incorrect reporting of running-account settlements, risk-based supervision data, client-level collateral segregation and annual returns.

Members had failed to report bank-account openings or closures within prescribed timelines and submit required undertaking addenda within seven working days of opening new bank accounts. Record-keeping lapses included missing evidence of client orders, failure to maintain securities registers, holding statements, bank books and client ledgers in prescribed formats, and inadequate evidence of client payout requests.

The exchange also flagged a lack of updated documentary evidence supporting clients' financial information in the derivatives segment and the absence of documented risk-management policies. Cybersecurity and other compliance gaps The exchange identified inadequate classification of critical assets, weak password policies and failure to enable or validate two-factor authentication on important trading and administrative systems.

Other gaps included data loss prevention systems operating in monitoring rather than prevention mode, incomplete integration with firewalls and security operations centres, inadequate log retention and review, improper privileged-access management, insufficient web filtering and incomplete encryption of data at rest. The NSE also flagged failure to implement web application firewalls for internet-facing infrastructure.

Other violations included pledging fully paid-up securities in the Client Unpaid Securities Pledgee Account (CUSPA), upstreaming deficiencies involving client credit balances, invoking client securities in excess of debit balances, discrepancies in net-worth calculations, delayed contract notes and failure to capture originating IP addresses for internet-based orders. The exchange also flagged inadequate surveillance of client trading, funding of client transactions and allowing trading in minors' accounts.