Mumbai, May 27 -- India's market regulator is considering lowering margin requirements for certain margin-funded stock trades in a move that could reduce capital locked up in such trades for brokers and investors. The proposal, discussed and approved earlier this month by SEBI secondary market advisory committee (SMAC), relates to margin trading facility (MTF) positions for futures and options (F&O)-eligible stocks where clients use cash for pay-in, according to two people familiar with the discussions. This will align margin requirements with those applicable to MTF trades in other F&O eligible stocks, according to one of the people cited above, who spoke on condition of anonymity. "However, the committee has also asked SEBI to take a view on this," this person added. A consultation paper on the proposal is expected shortly, the second person said, adding that the industry is also discussing changes to the extreme loss margin (ELM) framework for MTF trades. SEBI did not immediately respond to an emailed query. Currently, MTF positions in F&O stocks attract an initial margin requirement equal to value at risk (VaR) plus three times the applicable ELM. However, when the cash collateral collected from a client is subsequently used for settlement obligations, the margin requirement on the funded stock rises to VaR plus five times ELM. The SMAC's proposal seeks to reduce this higher maintenance requirement to VaR plus three times ELM even in cases where cash collateral is used for pay-in, effectively lowering the margin burden on such trades. The move aims to address what brokers see as an uneven framework between funded positions in F&O-eligible shares and MTF trades in other F&O stocks. VaR is the minimum margin collected to cover expected daily price volatility in a stock, while ELM is an additional safety buffer collected to protect against sharp and unexpected market moves. Margin trading allows investors to buy shares by paying only a portion of the trade value upfront while brokers fund the remaining amount against pledged shares or collateral. Investors must maintain margins on these funded positions and brokers can liquidate holdings if margins fall below prescribed levels...