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Representatives of the Association of NSE Members of India (ANMI) met with central bank officials on Wednesday, seeking a relaxation of an imminent regulatory restriction on lenders funding capital market proprietary traders, arguing that not all such trades are speculative, according to a person aware of the discussions.
While Reserve Bank of India (RBI) officials heard out the ANMI delegation, they offered no commitment , he said, requesting anonymity.
While confirming the meeting, an ANMI official said, "A lot of things get discussed. It's unfair to be point-wise and specific about what is discussed or not." "With due respect, everything discussed in a closed room is not open to transmission everywhere," the official added.
The meeting, requested for by the brokers' body, came after the central bank on 30 March deferred its 13 February circular on banks' capital markets exposure for three months through 1 July. Proprietary traders are brokers who trade for themselves. Other market participants include retail/high networth investors (HNIs), foreign investors and domestic institutional investors.
The brokers clarified to the RBI that proprietary traders don't speculate, but impart liquidity to the markets by offering two-way quotes -- a buy quote for sellers, and a sell quote for buyers. This is akin to market-making, which doesn't face a funding bar from banks.
"Another activity spoken about was that proprietary traders undertake spread trades, which are offsetting by nature and thus defined as 'hedges' that aren't not speculative or volatility-inducing in nature. RBI heard this argument, but said it was not for them to get into definitions such as these; rather this was for Sebi (Securities and Exchange Board of India) to decide," this person added.
An email sent to RBI to confirm the meeting went unanswered.
Proprietary trading firms currently secure bank guarantees from lenders by putting up small amounts of cash or cash equivalents as margin, along with personal or corporate guarantees.
The RBI directions on 13 February laid out, among others, that banks may extend guarantees in favour of exchanges or clearing corporations for proprietary trading, provided these guarantees are fully secured by cash, cash equivalents and government securities, with a minimum 50% cash component.
The RBI's strictures followed an inspection of certain private banks' exposure to capital market intermediaries, an equity market veteran told Mint earlier. The inspection revealed that the same set of proprietary traders had applied for bank guarantees from each lender, he said.
"There is a risk of public money being used for trading on the equity markets, particularly in speculative derivatives trades," he had said back then.
To be sure, proprietary brokers are major constituents who impart liquidity to the capital markets and take on the risk that hedgers seek to insulate themselves against.
On the BSE cash segment, proprietary traders accounted for 36.9% of cash market turnover in FY26, with retail/HNI and others accounting for 48.7%, Sebi data showed. On the NSE cash segment, the respective figures were 30.9% and 44.5%.
Proprietary traders dominate market share by turnover in the equity derivatives segment of exchanges. For instance, the proprietary share of total equity derivatives turnover on NSE stood at 59.26% in FY26, with retail /HNI and others accounting for 33.7%.
According to ANMI, bank guarantees worth ₹1.2 trillion were outstanding across exchanges as of February-end, and a few , if any, guarantees have been invoked in the past.
Bank guarantees are contingent liabilities of banks, triggered in favour of beneficiaries if their applicants are defaulting parties in transactions.
Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.
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