Broking and market intermediaries surge as RBI defers capital market exposure rules to July 1

The broking stocks will remain in focus on Wednesday’s trade after RBI extended the new increased capital requirement rules to July 1. The broking stocks have remained resilient in the current carnage as they fared better compared to other broader market intermediaries. Shares of Groww, Angel One, Motilal Oswal Financial Services opened over 3.5% higher on Wednesday supported by RBI relaxation and broader market optimism.

What are the new RBI rules?

The core regulation focuses on de-leveraging of relationship between banks and brokers. Under the new regulatory framework, banks can now provide credit facilities on fully secured basis. Earlier, partial or unsecured collateral credit was provided by banks to brokers. Secondly, the brokers need provide 50% collateral to bank for bank guarantees, out of which 25% should be in cash or cash equivalents.

Banks are also not allowed to fund broker’s own proprietary trades and are only allowed to fund trades for clients. In addition, the credit finance for proprietary trading, the collateral can now be accepted only in cash or cash equivalents for the full 50% component.

Market reaction

After the new rules were announced on February 16, the shares of leading intermediaries like BSE, Angel One, Groww and MCX fell up to 10% as it raises cost of trade for brokers and consequently impact trading volumes for exchange. However, the shares posted a resilient performance since then, trading currently near flat range.

Impact on investors

The prima facae impact on the investors is higher transaction cost for investors and traders per trade. However, the relaxation in the implementation of the new rules gives some respite to the intermedieries and traders. The transactional costs have increased from April 1 due to new increased STT (Securities Transaction Tax) rate gets effective today. Regulators and Central Bank have increasingly remained cautious on the over trading volumes in the stock market and aims to prevent any systemic risks for the capital markets.