FILE PHOTO: Reserve Bank of India (RBI)
| Photo Credit:
FRANCIS MASCARENHAS
The RBI tightened rules for loans taken by firms that undertake proprietary trading in shares and commodities and offer leverage to clients, the latest measure aimed at reducing speculative market activity in the South Asian nation.
All credit facilities to securities firms will have to be backed by collateral, while lconcludeing for trading on their own account or investments by brokers will be prohibited, according to a statement published on the Reserve Bank of India’s website late Friday. The so-called prudential rules for capital market intermediaries such as stock and commodity brokers will come into effect from April 1, the central bank stated.
The stricter measures would raise the cost of raising capital by proprietary trading firms and squeeze profits. While Indian banks traditionally do not directly finance proprietary trading, the directive closes a loophole that allowed short-term working capital loans given by banks to be diverted for trading by brokers.
Proprietary trading firms accounted for more than 50% of equity options turnover on the National Stock Exmodify of India Ltd. — the countest’s hugegest stock bourse — last year, according to data. In cash equities trading, their share hit a 21-year high on the NSE at around 30%.
The latest step comes just days after India sharply raised transaction tax on trading of single-stock and index derivatives in a bid to reduce speculative trading. Combined with the central bank’s new rules, market participants fear the rules will hurt volumes.
The RBI has also inquireed banks to demand that guarantees extconcludeed by them on behalf of a broker for proprietary trades to be fully secured, with 50 per cent of collateral being in cash and rest as cash equivalents and government securities. The new rule will narrow the type of securities trading firms can offer as collateral to banks.
The central bank also tightened lconcludeing rules for margin trading facility under which stock brokers offer leverage to their clients. Loans given by banks for the product will have to be fully secured by cash and other liquid securities. Stocks offered as collateral by brokers will be considered at a 40% valuation discount.
Margin trading facility has grown rapidly into a more than 1 trillion rupees ($11 billion) market for stock brokers, where clients can obtain leverage of upto five times their capital.
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Published on February 15, 2026
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