Brokers seek urgent FinMin meet over RBI’s new capital market norms: Sources

Brokers to meet Fin Min officials on Monday to flag the concerns arising from RBI’s proposed norms, sources

• Brokers to meet Finance Ministry over RBI's new collateral rules
• RBI's move may cut market liquidity, raise trading costs
• Brokers warn STT hike and RBI norms may hit derivatives volumes

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Brokers are set to meet Finance Ministry officials to flag concerns over the Reserve Bank of India’s (RBI) new capital market exposure norms that come into effect on April 1. The Association of National Exchanges Members of India (ANMI) has sought time on Monday to explain how the RBI’s move could impact market liquidity, trading volumes and even tax collections.

According to a person aware of the discussions, brokers believe the measures are disproportionate. “We wish to apprise the government of our concerns. There have been no defaults in recent years, given that SEBI has already tightened regulations. Therefore, the RBI’s move to ring-fence such activities appears excessive and warrants reconsideration,” the person said.

Brokers may seek deferment

Industry participants are likely to request a six-month deferment of the RBI’s directions. They are expected to argue that proprietary trading firms are regulated, well-capitalised entities that play a crucial role in providing liquidity and aiding price discovery through arbitrage and market-making.

The RBI has directed banks to increase cash collateral backing bank guarantees from 50 percent to 100 percent. Brokers say this could restrict bank funding for proprietary trades, reduce liquidity, widen bid-ask spreads and increase impact costs. That, in turn, could deter foreign portfolio investors, who depend on deep and efficient markets.

‘Capital market exposure has near-zero NPAs’

Brokers plan to highlight that banks’ exposure to the capital market segment has historically recorded near-zero NPAs, even during periods of financial stress, indicating low credit risk.

They may also argue that the move could disadvantage domestic firms compared to offshore players, who often operate with cheaper sources of funding.

Further, they are likely to point out that existing safeguards, particularly clearing corporation risk controls, already mitigate systemic risk. These include single-bank exposure limits, the Core Settlement Guarantee Fund (Core SGF), and mechanisms to prevent uncontrolled positions, all designed to ensure financial stability even in extreme scenarios.

The South Korea example

Brokers are also expected to cite international precedent. They may refer to South Korea’s 2011 curbs on the KOSPI 200 derivatives market, which they say severely damaged liquidity. According to industry claims, trading volumes fell sharply within months and never fully recovered, affecting all categories of market participants as liquidity dried up and execution costs surged.

Concerns over lack of consultation

Another key argument is that the RBI’s October 2025 consultation paper did not signal an increase in bank guarantee collateral requirements to 100 percent. As a result, market participants did not get an opportunity to assess the impact or provide feedback on the measure.

Brokers contend that the marginal reduction in credit risk may be outweighed by disproportionate liquidity risks for the broader market.

What the RBI directions say

On February 13, the RBI issued amended directions tightening bank funding norms for brokers and capital market intermediaries under revised credit facility guidelines.

Banks are largely barred from financing brokers’ proprietary trading in securities, with limited exceptions for market-making activities. Most exposures must now be fully collateralised, with a significant cash component, effectively moving from partial collateral requirements to near-100 percent backing.

Intraday funding is restricted primarily to settlement pay-in obligations and cannot be freely used for margin trading needs.

Brokers say this will raise their funding costs and limit access to capital for margin funding. Intraday funding is essential, they argue, to support large institutional trades in derivatives, meet the 50 percent cash margin requirement at the client level, particularly near expiry, and fulfil pay-in settlement obligations.

Margin Trading Facility (MTF) funding will now be permitted only against full collateral, reducing its flexibility. Professional clearing members also face stricter collateral requirements for bank guarantees.

STT hike adds to worries

Brokers are also expected to flag concerns about the Securities Transaction Tax (STT) increase announced in the Union Budget, effective April 1.

The Budget raised STT on futures from 0.02 percent to 0.05 percent. STT on options premium has been increased from 0.10 percent to 0.15 percent, and on options exercise from 0.125 percent to 0.15 percent.

One market participant said the industry wants to explain the likely impact of the STT hike on derivatives volumes and overall trading costs.

Brokers fear that the combination of tighter bank funding norms and higher STT could significantly dampen derivatives activity, reducing volumes, liquidity and market depth — potentially affecting the broader market ecosystem.

An ANMI spokesperson declined to comment.