MUMBAI: Shares of BSE, Groww and other capital market companies plunged up to 10% Monday after the Reserve Bank, over the weekend, tightened norms for bank lending to stock brokers and other market intermediaries mandating 100% collateral for any amount thus disbursed and also banning funding for proprietary trading by brokers.
Last Friday, the central bank issued revised norms on banks' lending to capital market participants, including 100% collaterals for bank guarantees and a ban on lending for proprietary trading by brokers.
Proprietary trading, which involves using a brokerage’s own funds to trade, accounts for 50% of equity options premium turnover, according to Jefferies. Stricter collateral requirements which now stands at 100% for bank financing to such traders would raise costs, it added.
The new RBI move raises costs for brokers and proprietary desks, curbing leverage and liquidity in the derivatives segment, where proprietary trading drives 40% of futures and options turnover.
BSE was trading at Rs 2,693.50 at 1200 hrs after tanking more than 10% to Rs 2,443.45, while Angle One was trading at Rs 2,819 down 7% after hitting a low of Rs 2,726.30 and Billionbrains Garage Ventures that runs the Groww brokerage was trending down 1% at Rs 171.15 after hitting a low of Rs 164.50.
Nifty capital markets index plunged nearly 3% with the BSE counter getting the maximum hit plunging more than 10% in opening trade, Angel One trading 4% lower while the recently Groww declining around 2%.
According to the Wall Street brokerage Jefferies, the BSE will be most affected by the new regulations on proprietary trading, which could result in a 10% earnings impact on the exchange operator.
Under the amended RBI (commercial banks– credit facilities) directions, 2026, brokers will be required to provide full collateral against loans for proprietary trading. The framework also bars banks from funding acquisition of securities on a broker’s own account, except for limited market-making activities, and also mandates that most exposures be backed by 100% collateral, including a significant cash component.
The direction further states that “banks shall not provide finance to a capital market intermediaries to buy securities on its own account, including for proprietary trading or investments”.
According to industry participants, though the RBI intent of safeguarding the banking system is understandable, a blanket ban can disrupt core liquidity functions performed by proprietary and arbitrage desks which play a key role in cash–futures arbitrage, options market making and index arbitrage—low-margin, high-volume strategies that help narrow spreads and improve price discovery.
“The new RBI move will raise costs for brokers and proprietary desks, curbing leverage and liquidity in derivatives, where proprietary trading drives 40% of futures and options turnover," said Devarsh Vakil, head of prime research at HDFC Securities.
The new rules, in conjunction with the recently doubled transaction tax on equity futures and options, are expected to dampen derivative trading volumes. The government and financial regulators have been taking many steps to cool the derivative trading market, where retail investors have made losses.
Angel One would need to "immediately relook" its funding for the margin trading facility, JM Financial said in a note, while Groww may need to raise funds from the market.
The Reserve Bank has new direction also updates norms for how banks extend credit to stockbrokers and other capital market intermediaries. The amendments, effective April 1, follow a draft consultation process last year, including when the central bank released draft commercial banks – capital market exposure directions in October 2025 for public comments.
The new direction mandates bank to ensure that bank guarantees issued in favour of exchanges or clearing houses must be backed by at least 50% collateral, of which 25% must be in cash, and equity shares accepted as collateral will attract a minimum 40% haircut for prudential valuation.
The amendments clarify that banks cannot fund proprietary trading by brokers, although financing may continue for market‑making activities and short‑term warehousing of debt securities.
Under the revised directions, banks must provide credit to Sebi-regulated stockbrokers and similar intermediaries only on a fully secured basis. Collateral for such credit can include cash, government or eligible securities, immovable property and other approved financial assets, but partial unsecured guarantees or promoter‑only guarantees will no longer suffice.
The amendments also clarify bans banks from funding proprietary trading by brokers, although financing may continue for market-making activities and short-term warehousing of debt securities. Margin trading facilities provided by brokers to clients remain eligible for secured credit, but banks must include margin call provisions in agreements and monitor collateral values on an ongoing basis.
All credit exposures to stockbrokers and capital market intermediaries will be counted as part of banks’ capital market exposure, which has prudential limits within broader exposure norms, potentially affecting the total amount banks can lend to the sector.