Shares of Multi Commodity Exchange (MCX) and BSE fell for the fourth straight day following new RBI rules effective July 1. These norms restrict bank funding for proprietary trading and increase collateral requirements, leading to a notable drop in market trading volumes.
Shares of the Multi Commodity Exchange (MCX) and the BSE faced sustained selling pressure on Tuesday, extending a losing streak to four days. The market reaction follows the implementation of new Reserve Bank of India (RBI) guidelines, which have introduced stricter capital exposure norms for financial institutions dealing with stockbrokers.
Impact of New RBI Collateral Rules
The central bank’s revised norms, which came into effect on July 1, aim to limit bank financing used for proprietary trading—a practice where brokers trade using their own capital rather than client funds. A key factor weighing on investor sentiment is the change in Bank Guarantee (BG) requirements. Under the new framework, BGs provided to brokers must now be backed by 100% collateral, doubling the previous requirement of 50%. This change is effectively locking up more liquidity for intermediaries, which market experts suggest is leading to the observed decline in market activity.
Drop in Trading Volumes
The financial impact on trading exchanges is already visible through lower turnover figures. Exchange data for the first three trading days of July shows a significant cooling of activity. The MCX has reported a sharp decline in its Options Premium Average Daily Turnover (ADT), which fell to ₹5,632 crore from the ₹9,338 crore recorded in June. Similarly, the BSE has experienced a drop in volumes ranging between 7% and 10% during the same period compared to the previous week. The Options Notional ADT on the MCX also saw a steep month-on-month contraction of 71%.
Investor Monitorables
For investors, the primary concern is whether this dip in trading volume will be a temporary adjustment or a longer-term structural shift in how market intermediaries manage their capital. While the immediate impact on trading volumes has been sharper than many expected, the full financial effect on the exchanges will depend on how quickly brokers adapt to the higher collateral mandates. Investors should track daily volume trends and any further commentary from the exchanges regarding the participation levels of proprietary traders in the coming weeks. The ability of these exchanges to maintain their market share and fee-based revenue amid these stricter regulatory requirements will remain a central point of interest.