The new framework forbids banks from supporting proprietary trading positions and requires 100% collateral backing for bank loans to capital market intermediaries.
Even as the sector prepares for a fundamental reset in funding for proprietary trading operations starting on April 1, 2026, brokerage companies are getting ready to present their case to the Reserve Bank of India (RBI) for clarifications and potential modifications to the new capital market exposure standards.
All bank loans to capital market intermediaries must be completely supported by qualified collateral and subject to ongoing monitoring, according to the updated framework.
More importantly, banks will no longer be permitted to fund brokers’ investment positions or proprietary trading. Credit support for operational needs, including market-making, settlement mismatches, working cash, and margin trading by clients via stockbrokers, will be allowed.
Impact of Proprietary Trading
Firms with sizable proprietary books contend that the general restriction could increase funding costs and decrease trading intensity, at least in the short term, leading them to approach the regulator with implementation-related concerns, despite brokers’ claims that the rules increase transparency and financial stability.
Another move in that direction is the new RBI capital market exposure guidelines for banks. The approach should significantly limit proprietary trading activities by requiring 100% collateral and greater capital backing for broker exposures. The market as a whole will benefit greatly from this, according to Feroze Azeez, Anand Rathi Wealth’s co-CEO.
Pressure on Funding Costs
Increased capital commitments will boost brokers’ cost of funds, which will reduce the appeal of highly leveraged proprietary positions and, in certain situations, force businesses to seek more money. He stated that while the longer-term effects of the shift suggest less volatility and greater market resilience, the short-term effects could include selective unwinding of holdings, somewhat decreased liquidity, and increased funding costs.
Standards for Collateral Haircuts
The guidelines establish consistent collateral haircuts at the operational level, which are 40 percent for listed stocks, 25 percent for sovereign gold bonds, mutual funds, and REITs/ETF units, and 15ā40 percent for debt instruments and mutual funds. According to market players, this eliminates uncertainty regarding risk management and valuation but may somewhat lower the funding value of pledged assets for certain brokers.
“The RBI’s tightening of capital market exposure standards signifies a structural shift in how brokers, particularly those with large proprietary trading operations, would get funding from April 1, 2026,” stated Ajay Garg, director and CEO of SMC Global Securities.
As a result, brokerage houses may experience a moderate decrease in leverage. Previously bank-funded proprietary desks may reduce trading activity or become more reliant on internal cash and other funding sources. But it is unlikely that brokers who are primarily involved in client-based activities will see any significant changes to their main business operations,” Garg stated.
Clarity of Margin Trading
Margin trading is one instance where the regulations provide clarity. A defined regulatory framework for providing brokers with funding for margin trading was previously absent from banks. For the benefit of client-facing enterprises and lender comfort, the updated standards specifically permit banks to finance margin trading by clients through stockbrokers.
“The Reserve Bank of India’s latest rules are a cautious move toward bolstering systemic stability,” stated Ajay Kejriwal, executive director at Choice Broking. The impact on the larger broking ecology is still mostly limited. Nonetheless, there can be a slight impact on capital allocation, leverage calibration, and treasury efficiency for proprietary desk brokers.
