BROKERS VOICE CONCERNS IN FINANCE MINISTRY MEETING, SEEK SIX-MONTH EXTENSION ON RBI REGULATIONS

Capital Market Intermediaries Raise Concerns Over RBI Norms and STT Hike

Key Figures:

• April 1: Date when RBI directions and higher STT on derivatives are set to take effect
• 6 months: Duration of extension requested by brokers
• 15%: Daily exposure limit for AAA-rated banks to the SGF's total liquid assets
• 10%: Daily exposure limit for AA-rated banks to the SGF's total liquid assets
• 15%: Overall exposure limit to any one bank

Summary

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Brokers associations, including ANMI, BBF, and CPAI, met with finance ministry officials to discuss the impact of RBI's proposed restrictions on capital market intermediaries. The meeting, held virtually on Monday, highlighted concerns over the timing of the RBI directions and the hike in Securities Transaction Tax (STT).

Impact of RBI Norms

The RBI's proposed restrictions, announced on February 13, will limit bank funding for brokers and intermediaries. Banks will be barred from financing proprietary trading, except for limited market-making, and most exposures must now be fully collateralized with a strong cash component. Brokers believe this will raise funding costs, strain derivatives operations, and tighten liquidity, especially near expiry periods and high-margin client exposures.

Brokers' Concerns

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Brokers raised concerns that the excessive restrictions could hurt the entire market ecosystem and may have a severe impact on market liquidity. They argued that no other Asian markets have imposed such curbs and warned that excessive restrictions could damage market activity, citing the South Korean experience as a potential cautionary example for India's capital markets.

Request for Extension

Brokers urged the finance ministry to consider a six-month extension of the RBI norms, citing the need for a balanced framework in the interest of the market. They also requested a joint consultation of RBI, SEBI, exchanges, and broker associations to evolve a framework that takes into account the robust safeguards in place, such as the Core Settlement Guarantee Fund (Core SGF) framework and controls preventing unchecked positions.

Next Steps

Finance ministry officials advised brokers to submit a detailed note with proper data points supporting each argument. The ministry will then seek views from the SEBI and refer the matter to the Reserve Bank of India if reconsideration is deemed necessary.