The strictness made by the Reserve Bank of India (RBI) in the rules related to Bank Guarantee may now affect the major stock exchanges of the country as well. According to a report by brokerage firm Dolat Capital, funding for Prop Trading Firms will become expensive due to the new rules. This may have a direct impact on the trading volume in the derivatives market, which is likely to put pressure on the earnings of the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and Multi Commodity Exchange (MCX).
Impact on funding of ₹1.5 lakh crore
According to the report, about ₹1.3 lakh crore to ₹1.5 lakh crore of bank guarantee based funding in the market is used by proprietary trading firms. Earlier, these firms could take market exposure of almost double their capital through bank guarantee. But after the revised rules of RBI this leverage has reduced to one times. This means that more capital will be required to do as much trading as before.
Trading can be expensive
Experts say that if traders have to raise funds through commercial paper instead of bank guarantee, their funding cost may increase from around 1% to 11%. The recent increase in Securities Transaction Tax (STT) has also increased the cost of trading. In such a situation, many trading strategies will not be as profitable as before.
Most likely impact on NSE
Dolat Capital believes that the most pressure may fall on NSE. According to the report, more than 45% of NSE’s index options trading comes from proprietary and high-frequency trading (HFT) firms. This business contributes about 53% of the total income of the exchange. The brokerage estimates that the average daily index options turnover of NSE in FY27 may be 8% less than its earlier estimate, while in FY28 this decline may reach 18%.
BSE and MCX are also not untouched
About 60% of BSE’s income comes from index options. If the participation of proprietary traders decreases, its turnover may decline by 10% in FY27 and by 20% in FY28. Whereas the impact on MCX is expected to be relatively less, but here also the share of bank guarantee based trading is considered to be 15% to 20%. According to the report, MCX turnover may be 6% less than expected in FY27 and 13% in FY28.
Long-term prospects remain
However, experts believe that the long-term picture of the Indian capital market is still strong. The number of investors registered with NSE has crossed 13 crores and the participation of retail investors is continuously increasing. But at present, due to the new rules of RBI, funding has become expensive, there may be a slowdown in trading activities for some time. In such a situation, in the coming months, investors and market participants will keep an eye on what actual impact the new rules have on the business and income of the exchanges.
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