Source: BS
Context:
Shares of brokerage firms and capital market intermediaries fell after the Reserve Bank of India (RBI) introduced stricter collateral and lending norms for loans to capital market participants.
The move is aimed at reducing leverage and strengthening financial stability, but it raises funding costs for brokers.
Key Regulatory Changes by RBI
1. Full Collateral Requirement
- Loans to capital market intermediaries (CMIs) must be 100% secured.
2. Higher Haircut on Equity Collateral
- Minimum 40% haircut on shares pledged as collateral.
- Reduces the value considered for borrowing.
3. Margin Trading Funding (MTF) Norms
- At least 50% cash collateral required for margin trading funding.
Who Are Capital Market Intermediaries (CMIs)?
Entities involved in securities market operations, such as:
- Stockbrokers
- Clearing members
- Proprietary traders
- Market makers
