Domestic prop trading firms face higher funding costs under RBI's new rules

RBI's new framework effective July 1 mandates 100% collateral backing for bank guarantees given to capital market intermediaries, a sharp tightening from the earlier practice where firms could obtain a Rs 100 crore guarantee by pledging about Rs 50 crore. Proprietary traders, who contribute 34% of cash market turnover and 49% of options volumes on NSE, will face higher funding costs and reduced leverage, putting domestic firms at a disadvantage versus foreign prop traders that can tap cheaper overseas balance sheets. Industry voices warn this could shift a meaningful share of trading volumes from domestic to foreign intermediaries.