Kanji Pitamber, FR Ratnagar take on Reuters; fire forex brokerage war

Raghu Mohan & Srikesh P Menon

Mumbai, Dec 6: Two of the country’s biggest forex brokerages, Kanji Pitamber and FR Ratnagar & Co - both of century old vintage - have teamed up and sparked of a brokerage war in the $1-billion per day inter-bank forex market. They have set up a company called IBS Forex Pvt Ltd, which is to offer an electronic trading platform to rival Reuters’ Dealing-2002 at a flat rate of Rs 25,000 per month going up to Rs 75,000 for up to $75 million by way of volumes.

Reuters’ in turn, sources say, has sounded off bank treasuries by offering to slash rates by 50 per cent to $1,000 and charging $25 on every deal put through. Country-treasures, however, said no formal communication has come forth from Reuters’.

“We have not received any formal letter from Reuters, but expect one by January and the rate cuts to be effective from April 1 or so,” a senior treasury official of a private bank said. Reuters’ sales team have been verbally notifying bank treasuries regarding a reduction of brokerage.

At present, Reuters charges a flat rate of $2,000 for the ‘Dealing 2002’ system with no transaction charges.

The Reserve Bank of India (RBI) has given its nod to Kanji Pitambers’ and FR Ratnagar & Co’s initiatives. Said Kanji Pitambers’ partner Gautam Ashra: “All regulatory approvals are in place. We just have to get a formal letter from the Foreign Exchange Dealers’ Association of India (Fedai)”.

Mr Ashra added that IBS Forex’s offering will have a step-up pricing. At the base rate of Rs 25,000, brokerage will be free for up to $25 million in volumes.

After that, it will be Rs 1,000 for every million up to $75 million. Over that, brokerage will be free. “We have capped brokerage at Rs 75,000. It is also linked to volumes. Treasuries can save on brokerage costs,” explained Mr Ashra.

The third partner in IBS Forex is Financial Technlogy which has also provided solutions to ICICI Direct and Sharekhan.com. The company is headed by Ganesh Roa who will be its chief operating officer. Mr Rao was formerly chief dealer at Bank of America. “This is the only way we can survive. As in equities, technology will run this business.
We hope to better Reuters’ pricing even after they reduce it,” said FR Ratnagar & Co’s director Parag Mehta. However, it is widely held that Reuters will continue to have an edge due to its experience and superior technology.

Mr Ashra’s firm and other big traditional voice-brokers, like FR Ratnagar & Co, Govindram & Sons, Parekh & Sons, and Mecklai & Mecklai, have been facing a tough time after the entry of Reuters’ and a general dip in inter-bank forex volumes. Of the daily turnover of $1 billion in the inter-bank forex market, roughly 40 per cent is executed by brokers, but margins are falling as brokerage has come down sharply after the RBI freed it from a Fedai-controlled one in 1999. Some of these old firms have downsized or are joining hands like in the case of Kanji Pitamber and FR Ratnagar & Co.