Trading volumes show early impact of capital risk norms set by RBI

An analyst from a leading brokerage house noted that the drop in volume on MCX due to RBI banking guarantee norms was higher than expected. He also emphasized that the low premium volume on Friday (around 4,270 crore rupees) was due to the US market holiday.

This analyst added that the impact on MCX is more pronounced because MCXCCL has a much larger share of margin in the form of bank guarantees and deposits than equity capital, estimated at approximately 59 percent. MCX stocks closed trading down by 3.23 percent, reaching a level of 2,723.35 rupees per share.

Factors Affecting Valuation

Nevertheless, experts believe it is too early to draw final conclusions about the overall impact. Devesh Agarwal, Vice President of IIFL Capital, stated that additional data must be awaited to assert that the decline is specifically caused by RBI norms. He also suggested that the reduction might be linked to decreased volatility, and the fall on MCX overall is related to the US market holiday, as four key commodities on MCX—gold, silver, crude oil, and natural gas—are important commodities in the American market.

Essence of the New Regulatory Norms

The RBI norms cover guidelines for banks regarding financing acquisitions by Indian corporations, rationalizing credit limits against shares, units of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), as well as the fundamental framework for lending to capital market intermediaries (CMIs).

The main objective of these norms is to prohibit banks from financing proprietary trading by brokers. Proprietary trading involves financial institutions, such as brokerage firms, using their own funds to execute trades and generate profits.