Brokers stuck between exchanges, Sebi amidst uncertain markets

Sudhir Shetty & Yagnesh Kansara

Mumbai, Oct 14: In a dwindling and bearishly uncertain markets, a large segment of members of the stock broking community currently find themselves squeezed between the two sets of regulators — the stock exchanges (SE) and the Securities and Exchange Board of India (Sebi). While the SEs want them to stay along, the regulator wants them to pay the overdue turnover related fees.

The turnover linked fee dues to Sebi is estimated at a whopping Rs 800 crore across all the bourses in India.

But in order to pay Sebi, there should be business, which for many of them is extremely difficult to come by in the current market. This largely due to two reasons: One, they find themselves out of sync with the new system of derivatives trading, and two, the global recession has lent extreme uncertainty in the local securities industry, where volumes have dwindled drastically.

Says Mr G Devanathan of Kaycee Securities: “The sagging market has brought down volumes considerably, and with the introduction of rolling settlement, the cash market has collapsed by around 75-80 per cent and with that there is a sharp fall in the brokerage income.”
Turnover on both The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) have fallen drastically since January this year. The average monthly turnover on the NSE is down at around Rs 1,700 crore from a lucrative Rs 6,200 plus in January. On the BSE, too, the turnover has slipped to around Rs 1,000 crore from over Rs 5,000 crore.

The overall income of both the brokers and the SEs have thus, slipped substantially over the past few months. Therefore, quite a number of low-end brokers feel they should move out of the business.

But to stem the exodus, the BSE’s move has further licked wounds of the brokers making them petulant to run the show. The BSE authorities last week doubled the VSAT surrender charged to Rs 75,000 from Rs 36,000 earlier. However, there are incentives for them to boost volumes. The surrender of trading rights on the NSE is all the more severe than on the BSE.

While the BSE’s move has made their exit difficult, Sebi’s longstanding demand of unpaid, overdue turnover related fees, prevents them to operate in the derivatives market.

The regulator has relaxed its stand on turnover fees, but still they need to pay the fees to operate in the new segment.

It is the cash-rich brokers who seem to have benefited with their application for the derivatives segment prior to February 2001, when neither the fear of badla going was there, nor there was any mandatory payment of Sebi fees for the new segment.

Currently, there are around 710 brokerage houses registered with the BSE and 962 with the NSE. While the number of participants in the derivatives segment in the BSE is around 165, that in the NSE is 374. In the current market, it is not too difficult to guess how many of these would have kept their cards in operations.

Brokers say the interest from small investors is disappearing due to the new rolling settlement. And with brokers trying to lure investors with new products like derivatives, they cannot simply offer the product as they don’t have the access to it, following the non-payment of turnover tax.

Dealers say with restrictions coming from all round the corner brokers will skittle, but for some it might be an exhilaration in the form of lowering of TWS and VSAT charges by BSE.