Proposed rule changes that would ban banks from lending for proprietary trading and require 100 percent collateral for other financing to brokers could cut profit margins in half and reduce derivatives trading volumes by a fifth, executives said.
Reuters spoke to executives at six trading firms, both domestic and international. All declined to be identified because they are not authorized to speak to the media.
The Reserve Bank of India’s initiative – set to come into effect on April 1 – follows a series of steps taken by the government and market regulators to cool the explosive growth of the country’s equity derivatives market, which has lured large and large investors in droves but with almost 90 percent of them making losses, an official survey has found.
Analysts say policymakers are wary of the spillover risks to household finances and the broader economy.
PANKING LEVER
Under current rules, trading firms use bank financing to increase leverage and make big profits, outsmarting retail investors with their much higher level of sophistication. Having to tap other sources of capital that tend to be more expensive will significantly erode margins, executives and analysts said.
“Domestic trading firms are concerned that their business model is outdated,” said an executive at a domestic mid-market trading firm.
“Large companies may still have some of their own capital to deploy, but this will impact their growth prospects,” said the head of a major domestic high-frequency trading (HFT) firm.
The National Stock Exchange of India (NSE) is the world’s largest equity derivatives platform, accounting for 70 percent of global index options trading, according to data from the World Federation of Exchanges.
Proprietary trading constitutes almost half of the total derivatives trading on NSE in terms of value. According to Jefferies, HFT firms account for about 50 percent of proprietary trading.
SMALLER TRADE FIRMS VULNERABLE
“Smaller proprietary companies that have historically used broker financing will come under the most pressure as they do not have large balance sheets or alternative credit access,” Mumbai-based brokerage firm IIFL said in a note this week.
The backlash from trading firms mirrors that of the brokerage lobby, which on Thursday urged a suspension of the proposed rule changes for six months to allow time for feedback and an assessment of the impact.
The Reserve Bank of India and the Securities and Exchange Board of India did not respond to emails seeking comment on the story.
Policymakers are annoyed that India’s derivatives market has grown to more than double the size of the underlying cash market, a stark and worrying contrast to the 2 to 3 percent ratio in major global markets.
Efforts so far include raising fees for trading derivatives, reducing the number of contracts offered by exchanges and raising taxes on profits from the trades.
But while these measures have reduced the number of contracts traded, the overall value of transactions remains high, indicating that significant capital is still being deployed.
The RBI’s new initiative to combat this could effectively penalize domestic players, the trading firm’s executives said.
Foreign trading firms could shelve plans to set up operations in India and shift existing operations to offshore centers where financing is cheaper, giving them a competitive advantage, three of the executives said.
Published on February 23, 2026
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