Proprietary Trading in India by Foreign Banks allowed by Finance Ministry over RBI objections – Bad Move

Proprietary Trading by Foreign Banks and Brokerages has been allowed by the Finance Ministry overruling India’s Central Bank RBI.There seems to be no logical reason given by the Ministry despite RBI objecting saying that it will affect the financial stability and lead to increased speculation in the Indian stock markets.Note Proprietary Trading refers to trading in financial assets by investment banks using their money and has come under the regulatory glare in the US.Huge conflicts of interest arise due to this practise as brokerages can indulge in front running and other unethical and illegal acts.Already major investment banks like Goldman have been fined hundreds of millions of dollars over improper trading acts.Properietary Trading encourages brokerages to mislead and defraud customers as they are generally on the other side of the trades and advising them as well.

There seems to be no valid reason and no big benefits to allow major foreign banks to trade in India.Instead it leads to financial volatility according to India’s Central Bank.However the decision has passed without much of a protest by the Indian opposition and other pressure groups.Note India managed to pass the financial crisis in 2008 with flying colors as RBI maintained conservative standards and rules.However India seems to have learned no lessons as its allows proprietary trading.Note foreign brokerages in India have been fined repeatedly for indulging in wrong practices.With Indian Stock Markets mostly a massively rigged game,it will become even more rigged in the future.

Green signal for FDI in proprietary trading

The finance ministry has decided to allow foreign direct investment in proprietary trading, despite the Reserve Bank of India’s [ Get Quote ] opposition.According to sources, the ministry has decided to include proprietary trading under broking services, where 100 per cent FDI is allowed under the automatic route.Nomura Financial Advisory and Securities, the Indian broking arm of the Nomura group, a Japanese financial conglomerate, is believed to be a beneficiary of this.RBI fears the decision will affect the health of the financial sector. In her exit interview to Business Standard last week, Shyamala Gopinath [ Images ], the then deputy governor, had said this would allow foreign companies to use the domestic market for speculative trading.