Sebi plans risk-based calculation for brokers’ variable net worth

The Securities and Exchange Board of India (Sebi) on Friday proposed a revamp of the way stockbrokers calculate their variable net worth, seeking to align capital requirements with actual business risks and client scale. Currently, variable net worth is linked to 10% of the average daily client cash balance retained by brokers.However, with the introduction of an upstreaming framework under which clients’ funds are up-streamed by brokers to clearing corporations, there is a minimal amount of cash balance of clients which is retained by a stockbroker, the regulator said.

“In view of the same, the calculation based on the availability of funds with stockbrokers may not be an effective way of calculating variable net worth,” Sebi said in a discussion paper.

The regulator has proposed a more comprehensive, risk-based approach. It said, variable net worth would be computed as an aggregate of two key components: a portion linked to client funds and another tied to the size of the client base.

The first component would require brokers to maintain 10% of the average credit balance of all clients over the previous six months. The second introduces slabs based on the number of active clients. Brokers with 10,000 to 50,000 direct clients would need an additional ₹50 lakh, with further increments for every additional 50,000 clients.Besides, graded requirements have been proposed for clients onboarded through authorised persons.