With the capital exposure norms issued by the Reserve Bank of India (RBI) kicking in from July 1, the impact on the market is becoming visible, with a drop in trading volumes, according to analysts.
According to data shared by analysts, the options premium average daily turnover (ADTV) for Multi Commodity Exchange (MCX) fell by nearly 40 per cent to Rs 5,632 crore during the first three trading days of July, compared with Rs 9,338 crore in the previous month.
Volumes on BSE during the first two trading days of July fell by 7-10 per cent compared with the same days in the previous week, in line with analysts’ expectations.
Analysts added that the contribution of proprietary traders to total contracts in index options on the National Stock Exchange (NSE) on Friday was around 51.3 per cent, compared with 52 per cent in June.
“The drop in MCX volume due to the RBI’s bank guarantee norms is higher than expected. It is noteworthy that Friday’s premium volume of around Rs 4,270 crore was low due to the trading holiday in the US market,” said an analyst at a leading brokerage house.
He added that the impact on MCX is higher because MCXCCL has a much higher proportion of margins in the form of bank guarantees and fixed deposits than equities, estimated at around 59 per cent.
Shares of MCX ended 3.23 per cent lower at Rs 2,723.35 apiece.
However, analysts added that it may be too early to estimate and assess the final impact.
“We will have to wait for more data to conclude that this is the impact of the RBI norms. The decline can also be due to lower volatility. The decline in MCX, per se, is also because of the US market holiday on Friday, as the four key commodities on MCX — gold, silver, crude oil and natural gas — are key commodities in the US market,” said Devesh Agarwal, Vice-President at IIFL Capital.
The RBI’s norms cover guidelines for banks to finance acquisitions by Indian corporates, rationalisation of lending limits against shares, units of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), and a principle-based framework for lending to capital market intermediaries (CMIs).
The norms are aimed at barring bank finance for proprietary trading by brokers. Proprietary trading involves financial institutions such as stockbrokers using their own funds to trade and earn profits.
