NSE flags broker lapses in margin trading, client funds and cybersecurity

NSE inspections found brokers extending margin trading against ineligible securities, mishandling client funds and failing to comply with cybersecurity and surveillance norms.

Following recent inspections, the National Stock Exchange (NSE) has flagged instances of brokers failing to collect adequate margins for the margin trading facility (MTF) and extending the facility against ineligible securities.

The observations cover October 2025 to March 2026.

The exchange said some brokers had not collected adequate margins in the form of cash, cash equivalents or Group I equity shares, with appropriate haircuts. Others had provided MTF in securities other than Group I — the eligible securities.

The circular also flagged lapses in handling client money. These included payouts to clients in excess of their available credit balances, non-settlement of client funds and failure to upstream clear credit balances to the clearing corporation within specified timelines.

 

Some members had pledged fully paid-up securities in the client unpaid securities pledgee account, invoked client securities in excess of debit balances or funded client transactions. Some had also passed on penalties for short collection of upfront margins to clients.

On authorised persons (APs), NSE said some were receiving or paying funds from or to clients, and some took user IDs and passwords from clients to trade.

Others offered assured returns, indulged in mis-selling or ran unauthorised portfolio management services. Terminals were not found at the reported locations in some cases.

Other lapses included incorrect data submitted under risk-based supervision and in annual returns, delays in issuing contract notes and trading allowed in a minor's account. Some members had not carried out surveillance of client trading.

On cybersecurity, NSE cited two-factor authentication not being enabled or validated on important systems, inadequate password policies and data at rest not being encrypted. It also noted generic IDs with privileged access and the absence of a web application firewall for internet-facing infrastructure.

NSE advised brokers to put in place systems and procedures to strengthen compliance.