Markets regulator Sebi plans to introduce single license mechanism for equity and commodity brokers. The issue was discussed last week when Sebi chairman U K Sinha met domestic brokers. The proposed move is expected to reduce financial burden on brokers and would also help investors access equity and commodity markets through a single demat account, market participants said.
The proposal comes within a year since commodity market regulator Forward Markets Commission (FMC) was merged with the Securities and Exchange Board of India (Sebi). According to sources, the markets regulator wants to bring equity and commodity brokerages under the ambit of common regulations and once the system comes in existence, the brokers will have a common registration number and can operate on an integrated platform. As per the current regulations, an equity brokerage cannot directly own a commodity brokerage and can participate in commodity markets only by setting up a subsidiary.
“The proposal is a part of the market regulator’s effort to bring down the high operational costs of brokering which has resulted in the shut down of many smaller brokerages in the last three years,” said a broker who was a part of the meeting with the Sebi chief.
De-recognition of various regional stock exchanges, combined with high capital requirements as well as industry consolidation, has forced a large number of equity stock brokers and sub-brokers to shut shop in the past 12-18 months. According to the latest Sebi bulletin, the number of brokers in the equity cash market dropped to 3,189 from 7,350 in December 2014 and 9,414 in January 2014.
While institutional clients largely deal with big brokerages, retail investors are increasing switching to discount brokerages that charge flat fee from them irrespective of the size of the order. As per Sebi regulations, a broker can charge a maximum fee of 2.5% and there is no floor.
In May 2012, Sebi issued a circular dictating all the 16 regional stock exchanges to either generate a turnover of more than `1,000 crore on a consistent basis or seek exit through voluntary surrender of recognition. Sebi had given the exchanges a two-year window to comply or exit.
Bourses such as Bangalore Stock Exchange and Hyderabad Stock Exchange were granted exit through the voluntary surrender route, whereas Sebi subsequently de-recognised the Delhi Stock Exchange. The decline in the number of brokers has also had a ripple effect on the count of sub-brokers. As per Sebi data, the number of sub-brokers declined to 39,456 as on June 2015 from 44,540 as on December 2014 and 52,940 as on January 2014.