RBI new rules on proprietary trading have created a buzz in the stock market. The Reserve Bank of India has tightened lending norms for firms involved in prop trading to reduce excessive speculation in shares and commodities.
The Reserve Bank of India (RBI) said that banks will no longer be allowed to give loans for brokers’ own trading or investment activities. The new rules will come into effect from April 1.
What Is Proprietary Trading?
Proprietary trading (prop trading) means when a financial firm trades using its own money to earn profits. It does not trade on behalf of clients.
These firms actively trade in stocks, commodities, and derivatives to make gains.
According to reports, prop trading firms contributed more than 50% of equity options turnover on the National Stock Exchange of India Ltd (NSE) last year. In the cash market, their share reached around 30%, the highest level in 21 years.
Key Points of RBI New Rules on Proprietary Trading
- Banks cannot give loans for brokers’ own trading.
- All loans to securities firms must be fully secured with collateral.
- Bank guarantees for proprietary trades must also be fully secured.
- 50% of the collateral must be in cash, and the rest in cash equivalents or government securities.
- The rules will apply to stock and commodity brokers.
The RBI said these steps are taken to control risky and speculative trading in the market.
Impact on Stock Market
The new rules come just days after the government increased transaction tax on stock derivatives to reduce speculation. Experts believe these combined steps may reduce trading volumes.
A report by Jefferies suggests that around 10–12% of options turnover could be affected. This may also impact earnings of stock exchanges and brokerage firms.
Shares That Fell After the Announcement
After the announcement of RBI new rules on proprietary trading, several market-related stocks declined:
- BSE Ltd shares dropped up to 9.5%.
- Angel One shares fell around 6%.
- Billionbrains Garage Ventures Limited (parent company of Groww) declined over 4%.
Investors are worried that lower trading volumes could affect company profits.
Why RBI Is Taking This Step
The RBI wants to keep the financial system safe and stable. It also The RBI wants to keep the market safe and stable. It is trying to reduce too much risk in trading. By making loan rules stricter and asking for more security, the RBI wants to stop risky trading and protect investors.
These rules may slow the market for a short time, but in the long run, they will make the financial system safer.
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