No striking impact of RBI funding curbs on prop traders: NSE
Proprietary traders, or brokers who trade for themselves, extended their existing bank guarantees (BGs) and tapped the corporate bond market to sustain their equity market activity to cope with the Reserve Bank of India's (RBI) recent curbs on bank funding.
This prevented a striking impact on prop volumes, said Sriram Krishnan, chief business development officer of the National Stock Exchange (NSE), during the exchange’s second-quarter earnings call.
The official was responding to an analyst's query on the "tumultuous" quarter that impacted NSE's sequential earnings.
The RBI circular (on bank funding for prop traders) was scheduled to go live on 1 April this year but was deferred by three months and took effect from 1 July. Prop traders used this postponement to their advantage.
"A number of market participants, particularly brokers getting impacted potentially have extended their prevailing BGs by several months, as much as they could, and some have raised money by issuing corporate bonds in the last few months," said Krishnan in response to the analyst's query.
"I think market participants have their own way of coping with any new changes being imposed by regulators and that is what is happening here, and therefore there is no striking impact as such that can be attributed to this one particular change," Krishnan added.
NSE's second quarter earnings were impacted sequentially by the regulatory changes related to funding norms, market regulator Securities and Exchange Board of India (Sebi) implementing a closing auction session since August and geopolitical disturbances created by the West Asia war, Krishnan said.
NSE's profit after tax fell 17% sequentially to ₹2,578 crore in the July-September quarter (Q2FY27) due to regulatory changes and the global impact of rising oil prices due to the West Asia war.
Revenue from operations fell 11% quarter-on-quarter (QoQ) to ₹4,067 crore. Operating profit declined 14% to ₹3079 crore.
On a year-on-year basis, however, net profit grew 23%, operating revenue rose 11% and operating profit more than doubled , rising 107%.
Meanwhile, the impact of the closing auction session was more pronounced on the determination of the settlement price for expiring index options than in the cash market, Krishnan said.
Also Read | NSE begins valuation exercise for its mega-IPO
He added that with Sebi reverting to the pre-CAS settlement mechanism of index options from 7 December for one year, cash market activity would expand.
"There would be greater clarity on how expiring index options are going to be dealt with and therefore have one year to understand the system better and eventually if there are further changes that may be considered, they (participants) will be better prepared for oncoming changes," he said.
Sebi implemented CAS from 3 August to ensure better price discovery at market closing through a 10-minute auction mechanism between 3:20 and 3:30 pm rather than the earlier volume-based weighted average price in the last half hour.
Following feedback from market participants, Sebi decided to revert to the volume-based mechanism for settlement of derivatives contracts for a year from 7 December.
Krishnan also said he expected NSE market share in equity options to consolidate between 70% and 72% from 68% at the end of the September quarter, with BSE holding the rest.
NSE shares listed on 24 September at ₹1,800 apiece against its issue price of ₹1,785. The stock closed 1.35% higher at ₹1803.8 on Tuesday.
Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.
Get Latest real-time updates
Catch all the Business News , Market News , Breaking News Events, JIO IPO Listing Today LIVE and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
✕
Wait for it…
Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.