NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

Margin Trading Facility and Securities Lending Explained

Updated 11 October 2026 · Fact-checked

Margin Trading Facility (MTF) lets a client buy shares by paying only part of the value upfront while the broker funds the rest, keeping the shares as collateral. Securities lending lets a lender give shares to a borrower for a fee, under a scheme run through exchanges. Learn the conditions, then eliminate wrong options.

Understand Margin Trading Facility and Securities Lending

Brokers do more than execute trades. Some also help clients fund their purchases or cover their sales. Two such services are the Margin Trading Facility (MTF) and securities lending and borrowing (SLB).

In MTF, you buy shares and pay only a part of the trade value, called your margin. The broker funds the balance. The shares you buy are held as collateral for that funding, and you pay interest on the amount funded. MTF is meant for buying. It is not a facility to sell short.

SEBI allows brokers to offer MTF subject to conditions. Know these ideas: only stocks that meet the regulator's eligibility norms can be bought under MTF; the client must give the required margin upfront; the broker holds the funded shares as collateral through a pledge, in a designated MTF account, and may not use them for its own purposes; and the broker's exposure to funding is limited by its own net worth and the rules in force. A client's MTF shares can be sold by the broker if the margin falls and the client does not top it up. This is the main risk: if the price falls by more than your margin percentage, you lose more than the margin paid.

Securities lending and borrowing is the other service. A lender holds shares and lends them for a fee. A borrower needs shares, usually to deliver on a short sale or to cover a shortfall. The lending is done on the exchange platform, with an approved intermediary acting for lenders and borrowers under a SEBI scheme, and the clearing corporation handling settlement and collateral. The borrower gives collateral, and the lender keeps the benefit of the economic rights, such as corporate actions, through adjustments.

For the exam, focus on who funds, who holds collateral, what risk each side takes, and the purpose of each facility. Do not mix MTF with SLB. MTF is funding to buy. SLB is borrowing shares to deliver.

Key formulas to remember

MTF funding split: Funding by broker = Trade value − Client margin; The client pays the margin upfront. The broker funds the rest and charges interest.
MTF margin amount: Client margin = Trade value × Margin %; Use the margin percentage given in the question. Do not assume one.
Purpose of MTF: MTF = funding to buy; shares bought are held as collateral; It is not meant for selling shares you do not own.
Purpose of SLB: SLB = lender gives shares to borrower for a fee against collateral; It runs on the exchange platform through approved intermediaries, with the clearing corporation handling settlement and collateral. It is not a direct deal between investors.
Value after a price fall: Loss = Quantity × Fall in price per share; The loss falls on the client. It exceeds the margin paid only when the percentage price fall is greater than the margin percentage (for example, a fall of more than 50% with a 50% margin).

How to solve Margin Trading Facility and Securities Lending questions

Use this method for any question on funding facilities or securities lending.

1Identify the facility: is the question about funding to buy (MTF) or lending shares (SLB)?
2Identify the party: client, broker, lender, borrower, approved intermediary or clearing corporation.
3Check the purpose. MTF funds purchases. SLB supplies shares to deliver.
4Look for the collateral rule: who holds it, in what form, and whether it is kept apart from the broker's own assets.
5For numbers, compute margin = value × margin %, then funding = value − margin.
6Check any risk statement. The client bears the price risk in MTF, and a margin shortfall can lead to sale of shares.
7Remove options that mix the two facilities or that allow things the rules do not.

Quickest way: Purpose-first elimination

When to use it: When you have under a minute per question and the options use similar wording.

Decide: buy on funding means MTF; borrow shares to deliver means SLB.
Cross out any option that uses the wrong facility.
Cross out options that say the broker may use client collateral for its own purposes.
For calculations, do margin first, then funding, and check the units in the options.

Common mistakes in Margin Trading Facility and Securities Lending

Treating MTF as a way to short sell.
Both involve a broker giving something to the client.
Fix: MTF funds a purchase. Borrowing shares for delivery is SLB.
Thinking the client pays the whole value in MTF.
The word margin is read as a deposit on top of the price.
Fix: The client pays only a part. The broker funds the rest.
Thinking the broker can use MTF shares as its own asset.
The broker holds the shares and it seems like it owns them.
Fix: They are client collateral, held through a pledge in a designated MTF account. The broker may not use them for its own purposes.
Believing the client's loss is capped at the margin.
Margin sounds like the maximum amount at risk.
Fix: The client carries the full price fall on the whole position. Loss exceeds the margin only if the percentage fall is greater than the margin percentage.
Thinking SLB is a direct deal between two investors.
Lending sounds like a private arrangement.
Fix: SLB is done on the exchange platform through approved intermediaries under a SEBI scheme, with the clearing corporation handling settlement and collateral.

Worked examples

Example 1

A client buys shares worth ₹5,00,000 under MTF with a margin of 40%. How much does the broker fund?

Show the solution

Client margin = ₹5,00,000 × 40% = ₹2,00,000.
Broker funding = ₹5,00,000 − ₹2,00,000 = ₹3,00,000.

Answer: ₹3,00,000

Example 2

A client buys 1,000 shares at ₹200 under MTF with a 50% margin. The price then falls to ₹170. What is the client's loss, and is it more or less than the margin paid?

Show the solution

Trade value = 1,000 × ₹200 = ₹2,00,000.
Margin paid = 50% × ₹2,00,000 = ₹1,00,000.
Loss = 1,000 × (₹200 − ₹170) = ₹30,000.
₹30,000 is less than ₹1,00,000, but the client bears all of it, and the broker may ask for more margin if the cover falls short.

Answer: Loss is ₹30,000, which is less than the margin paid. The client bears the loss in full.

Exam tips

Read the first line of the question to see whether it is MTF or SLB before looking at the options.
Do not assume a margin percentage. Use only the one given in the question.
Watch for options that give the broker rights over client collateral. These are usually wrong.
A wrong answer costs 25% of the marks for that question. With four options, a blind guess has an expected value of zero, and guessing becomes favourable once you can eliminate at least one option with confidence.

Practice questions from Other Services Provided by Brokers

Margin Trading Facility and Securities Lending: frequently asked questions

What is the margin trading facility in India?

It is a service where a broker funds part of a client's share purchase. The client pays a margin, the broker funds the balance, and the shares bought serve as collateral. The client pays interest on the funded amount.

Can any stock be bought under MTF?

No. Only stocks that meet the regulator's eligibility norms can be bought. The exact list and criteria are set by SEBI and the exchanges and can change.

What is the difference between MTF and SLB?

MTF helps a client buy shares with borrowed funds. SLB lets a borrower obtain shares from a lender for a fee, mainly to deliver. One lends money, the other lends shares.

Who bears the risk in MTF?

The client bears the price risk. If the shares fall and margin is short, the broker can ask for more funds or sell the shares.