Limited trading member
Also written LTM
A special category of trading member, offered by some exchanges, who is not a member of the cash market segment and whose net worth requirement is decided by the exchange, not SEBI.
In plain language
Not every trading member on the derivatives segment also trades in the cash market. Some exchanges recognise this with a distinct category of membership.
A limited trading member is a trading member who is not a cash market member of the exchange at all — their trading is confined to the derivatives segment.
How it works
Chapter 8, section 8.3, notes that a few exchanges have this special category. Section 8.5 places limited trading members alongside ordinary trading members on net worth: SEBI has prescribed a net worth requirement for clearing members (Rs 3 crore) and self-clearing members (Rs 1 crore), but has not specified any net worth requirement for a trading member or a limited trading member — that decision is left to the stock exchanges themselves.
A worked example
An exchange runs both a Capital Market segment and an F&O segment. Firm A is a member of both and trades cash-market shares as well as derivatives — an ordinary trading member. Firm B applies only for derivatives-segment membership and never trades the cash market at all; the exchange registers Firm B as a limited trading member.
SEBI itself fixes a net worth floor only for clearing members — Rs 3 crore for a clearing member, or Rs 1 crore if it is only a self-clearing member. Neither Firm A nor Firm B is a clearing member, so neither figure applies to them: SEBI has not fixed a net worth figure for a trading member or a limited trading member. Instead, the exchange sets its own net worth requirement for Firm B, which may differ from what it requires of ordinary trading member Firm A.
Why NISM asks about it
Chapter 8, section 8.3, introduces limited trading members as a special exchange-created category; section 8.5 groups them with trading members on the point that SEBI leaves their net worth requirement to the exchange. Expect a question testing whether limited trading members are cash-market members (they are not) and who sets their net worth requirement (the exchange, not SEBI).
Common exam traps
- A limited trading member is not a member of the cash market segment — that is the entire distinguishing feature.
- SEBI sets net worth for clearing members and self-clearing members, but not for trading members or limited trading members — exchanges decide that figure themselves.
- Not every exchange offers this category — the workbook says only "few exchanges" do.
Check yourself
1.Which of the following correctly states the balance sheet net worth requirements prescribed by SEBI for the derivatives segment?
- a)₹3 crores for a clearing member, ₹1 crore for a self-clearing member, and no requirement specified for a trading member
- b)₹3 crores for a clearing member, ₹3 crores for a self-clearing member, and ₹1 crore for a trading member
- c)₹1 crore for a clearing member, ₹3 crores for a self-clearing member, and ₹50 lakhs for a trading member
- d)₹50 lakhs for all three categories of member
Show the answer
Answer: (a) ₹3 crores for a clearing member, ₹1 crore for a self-clearing member, and no requirement specified for a trading member
SEBI has prescribed a net worth requirement of ₹3 crores for clearing members. The net worth requirement is ₹1 crore for a self-clearing member. SEBI has not specified any net worth requirement for a trading member.
The logic behind the difference is worth carrying: a clearing member clears for other trading members, so he pulls their risk into the settlement system. A self-clearing member clears only his own trades, so his failure endangers no one else's clients — hence a lower bar.
Option C reverses the two figures, which is the single most common error on this question.
Option D confuses the balance sheet net worth with the liquid net worth. ₹50 lakhs is the liquid net worth that every clearing member — both clearing members and self-clearing members — must maintain with the exchange or clearing corporation. It is not a balance sheet figure and it does not apply to trading members.
One further point that questions like to probe: "no requirement specified" does not mean "no requirement at all". SEBI has not specified one, but the stock exchanges decide the net worth criteria for Trading Members and Limited Trading Members.
Where this is taught
Free preparation for NISM Series VIIIRelated terms
- Trading memberA member of a stock exchange who trades on behalf of clients or on his own account, under a trading member ID shared by all his registered users — and who must clear through a clearing member.
- Trading cum clearing memberA clearing member who is also a trading member of the exchange, and may clear and settle its own trades, its clients' trades, and the trades of other trading members and custodial participants.