Collateral Damage: Proprietary traders feel the squeeze under RBI's new rules

RBI's new framework requiring 100% collateral for bank financing to proprietary traders, effective July 1, could raise trading costs by 300-500 basis points and compress post-tax returns into mid-single digits. Prop traders, who accounted for 34.3% of cash market turnover and up to 49% of options volumes as of May 30, are already seeing volume declines and layoffs. Several firms are likely to approach SEBI seeking a review of their regulatory treatment to soften the impact.