Jul 3, 2011

Finance Ministry for 100% FDI in Proprietary Trading in India

Despite conflicting views with RBI, the Finance Ministry has decided to go with his wits and allow 100% FDI in proprietary trading industry of capital market.
Proprietary trading is trading in stocks, derivatives, commodities and such other financial instruments on a company’s own account with own funds. Such firm doesn’t use his clients’ or other money. This trading activity is obviously aimed at making profit out of such trading on own money of the firm.
Presently banks do proprietary trading through saperate subsidiary company, and they have a cap on such exposure as well. While a big number of foreign banks' profits contain huge share of contribution from such proprietary trading; as sources from big two accounting firms tell us.
The main reasons for RBI’s  dislike towards foreign firms’ proprietary trading are,
  • The 2007-2008 USA financial crisis had many firms doing heavy proprietary trading, which were then went under and all over.
  •  The overly rise in