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Prop Traders' Capital Costs Surge Amid New RBI Rules
17 Feb
Summary
- Prop traders' market share in index options rose to 49.5%.
- New RBI rules require 100% collateral for bank guarantees.
- Combined prop and individual traders hold almost 89% share.
Proprietary traders, who trade for their own account, have significantly boosted their market share in key index options on India's National Stock Exchange. Their gross market share, based on premium turnover, climbed to 49.5% in the nine months leading up to March 2026. During the same period, individual traders also saw their market share increase to 39.2%. Together, these two groups now account for nearly 89% of the total gross options premium turnover.
The Reserve Bank of India (RBI) has introduced new directives, effective April 1, 2026, that will raise the cost of capital for proprietary traders. Under these new rules, traders must provide 100% collateral for bank guarantees used for margin purposes. Previously, only 50% collateral was required. This substantial increase in required collateral is expected to reduce market liquidity and potentially widen the bid-ask spread for clients.
Market analysts suggest that these new norms, combined with a 150% hike in securities transaction tax on options and futures announced in the Union Budget 2026-27, will likely dampen trading volumes. While larger proprietary trading firms might find alternative capital sources, smaller and mid-sized firms are anticipated to be most affected. This regulatory shift could impact the earnings of exchanges like BSE, with an estimated 10% reduction in earnings for the bourse.
