Proprietary trading desks are bracing for a period of extreme volatility as the Reserve Bank of India’s (RBI) new collateral guidelines take effect on July 1. The mandate requires firms to provide 100% collateral for all bank guarantees, effectively ending the previous leverage-heavy operational model.
The move is expected to trigger an immediate rise in the cost of capital, forcing firms to re-evaluate their trading strategies. Market participants have noted that this financial pressure could significantly diminish the liquidity provided by these desks, which often act as the backbone for daily market turnover.
Industry experts are warning that the policy shift could have long-term consequences for market health. Higher operational expenses may lead to reduced trading volumes and a potential wave of layoffs across the sector as firms struggle to maintain profitability under the new compliance regime.
In response to these mounting challenges, several industry stakeholders are lobbying for a regulatory review. They argue that while risk mitigation is essential, the current framework may inadvertently stifle market efficiency and discourage participation from key liquidity providers.
