Zerodha RMS MTF Square-off

RMS policy for MTF square-off

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The Risk Management System (RMS) policy for MTF square-off on Zerodha (and any broker offering MTF) follows a defined sequence: margin call notice, top-up window, then forced liquidation if not addressed.

Trigger: MTM erosion

MTF square-off is triggered when:

  • Position MTM loss erodes the maintenance margin.
  • Pledged collateral value (for the MTF position) falls below requirement.
  • User fails to pay accrued interest.

The exact trigger threshold varies; typically when total margin used > 90% of margin available.

Margin call sequence

StageAction
1. Margin call noticeSMS / email within 1 hour of trigger
2. Top-up window24-48 hours to add funds or close
3. Final noticeIf no response, second alert
4. Auto-square-offIf unresolved, forced liquidation

The timeline is more aggressive than for regular F&O margin shortfall.

What happens at auto-square-off

When RMS triggers MTF square-off:

  • Broker sells the MTF position at market price.
  • Proceeds repay the borrowed amount first.
  • Any excess credits to user account.
  • If proceeds insufficient, user owes the broker (negative balance).

How to avoid

For an active MTF user:

  1. Monitor MTM closely.
  2. Maintain buffer cash for unexpected MTM.
  3. Respond promptly to margin call notifications.
  4. Set automatic alerts for margin usage thresholds.

Negative balance after square-off

If auto-square-off doesn’t fully cover the borrowed amount:

  • User has a negative balance.
  • Broker can pursue recovery (legal action, account closure).
  • Personal liability remains.

This is a key risk of MTF; the user is personally on the hook for the difference.

See also

External references

References

  1. SEBI, MTF risk management framework, sebi.gov.in.
  2. Zerodha, MTF RMS policy, zerodha.com.
  3. Zerodha Support, MTF square-off process, support.zerodha.com.

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