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2 hours ago
22
- Business News
- economy
Under the revised norms, banks can extend credit to brokers only against fully secured exposures, with mandatory cash collateral, steep haircuts on equities, and a complete bar on financing proprietary trading.
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The Reserve Bank of India has introduced a stringent new framework for bank funding to stock brokers, effective April 1, 2026, in a bid to rein in leverage and strengthen risk management across capital markets. Under the revised norms, banks can extend credit to brokers only against fully secured exposures, with mandatory cash collateral, steep haircuts on equities, and a complete bar on financing proprietary trading. The move is expected to raise borrowing costs for brokers while tightening overall market discipline.
- RBI tightens funding norms for stock brokers
- New broker funding rules effective April 1, 2026
- Banks are allowed to lend to brokers only against 100 per cent secured exposure
- Unsecured or partially secured funding structures are disallowed
- Minimum collateral requirement set at 50 per cent
- At least 25 per cent of collateral must be in cash
- Equity collateral to attract a 40 per cent haircut
- Banks barred from funding brokers’ proprietary trading activity
- All broker funding to be treated as capital market exposure
- Move aimed at curbing leverage and strengthening risk management
- Norms are likely to raise funding costs for stock brokers
The tighter regulations are set to push up capital-raising costs for proprietary trading firms and put pressure on their margins. Although Indian banks generally avoid directly funding proprietary trades, the RBI’s directive shuts a long‑standing loophole that allowed brokers to reroute short‑term working capital loans toward trading activities.
Proprietary trading desks have become increasingly dominant in India’s markets. Last year, they accounted for over half of the equity options turnover on the National Stock Exchange, the country’s largest bourse, while their share in cash equity trading climbed to a 21‑year high of about 30 per cent, as per media reports.
The clampdown comes just days after the government sharply increased the securities transaction tax on single-stock and index derivatives to curb excessive speculation. Taken together with the central bank’s new funding rules, market participants worry the measures could dampen trading activity and weigh on overall market volumes.
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