RBI tightens broker funding norms, ending prop-trading finance
RBI tightens broker funding norms, ending prop-trading finance
RBI mandates 100% secured funding for stock brokers, bans prop-trading financing, and tightens collateral norms, with rules taking effect April 1, 2026.
In a sweeping move to tighten risk in the capital markets, the Reserve Bank of India announced amendments that shift funding toward fully secured facilities, with limited carve-outs such as intra-day settlement timing facilities.
Under the new framework, banks will no longer be allowed to finance proprietary trading by brokers. Funding will remain available for legitimate activities such as market making and certain debt warehousing functions, but overall exposures will be classified as capital market exposure, potentially tightening banks' lending appetite.
Collateral norms are tightened: a minimum of 50% collateral will be required, of which at least 25% must be cash. Equity shares used as collateral will face a minimum haircut of 40%, reducing their apparent value. Collateral must be monitored continuously with explicit margin-call clauses in facility agreements. The changes also extend to bank guarantees issued for exchanges or clearing corporations, reflecting a more conservative approach.
Effective 1 April 2026, the amendment could reshape the operating landscape for stock brokers, with banks reassessing risk appetite and brokers adjusting strategies. The overall impact will depend on how lenders interpret and implement the new rules.
