Zerodha's Nithin Kamath Warns of Hidden Risks in MTF Boom Despite SEBI Safeguards

• Zerodha CEO Nithin Kamath flags growing risks for brokers due to the rapid expansion of Margin Trading Facility (MTF), which could amplify losses during market corrections.
• MTF exposure has surged five-fold to over Rs 110 lakh crore in four years, driven by higher margins and STT in F&O, but Kamath notes a lack of a real risk model for brokers.
• Brokers offer up to five times leverage, requiring only 20% margin, with intense competition leading to a 'race to the bottom' in offering maximum permissible leverage.
• Kamath highlights MTF's higher and more complex risks compared to F&O, including longer holding periods, exposure to 1,300 stocks (many illiquid), and predominantly long-only positions.
• He warns that market drawdowns could lead to rapid liquidity loss and forced liquidations, causing 'mayhem' as forced selling cascades, especially in non-F&O stocks.

Why It Matters: Nithin Kamath warns that the MTF boom poses significant, unaddressed risks for brokers and markets during downturns.