Brokers body may approach RBI on funding norms, flags market concerns

Brokerages are planning to approach the RBI to review revised capital market exposure norms, which they say could hurt proprietary trading, raise MTF funding costs and weigh on market liquidity

The Association of National Exchanges Members of India is planning to approach the Reserve Bank of India (RBI), seeking a review of the amended directions on capital market exposure, which has led to a sharp sell-off in listed brokerage stocks.

 

Analysts and brokers said the revised norms could disproportionately affect smaller brokerages that rely on proprietary trading, as higher capital requirements would constrain leverage. The changes may also push up funding costs for margin trading funding (MTF), a business segment where larger brokers have expanded aggressively in recent years to diversify revenues.

 

“They are shifting the leverage-based approach to a more structured framework, which is a major change. Within this, some conditions are not favourable for the industry, especially for proprietary desks. The higher collateral requirements could also impact market-making activity. If proprietary trading declines, market volumes could be hit, affecting both liquidity and brokers’ earnings,” said K Suresh, president of Anmi.

 

Brokers have also flagged concerns over the 40 per cent haircut prescribed on shares used as collateral, calling it steep and seeking moderation.

 

“We are seeking a discussion with the RBI. We will also share a copy of our response with the market regulator, the securities and exchange board of India,” Suresh added.

 

The revised norms, which come into effect from April 1, along with increase in STT, are seen weighing on trading volumes.