The meeting has been called at the behest of the Foreign Exchange Dealers' Association of India (Fedai) and convened by the Bombay Exchange Brokers' Association (Beba).

If through, Reuters' interface will allow pricing in the forex-broking segment to be thrown open to market forces, leading to a substantial reduction in transaction costs and expenditure in bank treasuries. The development is, however, expected to also eat into the margins of proprietary forex brokers and quite a few may well have to close down.

The EGM comes close on the heels of the stiff resistance put up by both Aieba and Beba towards Reuters, which was supposed to go on-linewith its electronic broking interface via media Reuters Transaction Services (Switzerland), some time in August this year.

Confirming the development, Kanji Pitamber & Co's partner and Beba chairman Gautam Ashra said: "Banks are keen that we cut brokerage by 50 per cent. While this may be tough, the EGM on December 21 will consider both a cut and a move towards negotiable brokerage, but there is no promise that we will oblige".

Ashra added that the brokerage issue once settled, while placing traditional voice brokers on an even keel with Reuters' flat-charge offering operationally, will benefit the international agency more vis-a-vis forex brokers. He cautioned, however, that Beba will be ready for a cut only when the forex market improves. Citing low turnover, Ashra said: "This is a result of Reserve Bank measures on the rupee front, which the central bank claims were triggered off by banks in the first place".

At a Fedai meeting held on December 2 to deliberate on the concept of free pricing on thebrokerage front, while bankers held the view that it should be made negotiable, forex brokers held it was not feasible and suggested that volume discounts could, however, be thought of.

Current brokerage per $1 million are as follows: Rs 2,000 for an outright spot-deal; Rs 1,500 for short-swaps (less than a week); and Rs 3,000 for a long-swap (over a week). A 50 per cent cut in brokerage will eat into the margins of the largely proprietary forex brokers, who are already going through a lean time: Daily turnover in the inter-bank foreign exchange market is down to around $1 billion to $1.2 billion from earlier highs of $2.2 billion to $2.7 billion, and nearly 80 per cent of such trades are bilateral.

Reuters was to price its offering at a flat $3,000 dollars a month, but had to postpone the launch of the same with forex brokers protesting on grounds that brokerages had come down over the past three years, and further that the same was in any case fixed by Fedai, a body in which the banking community findsa substantial representation. Beba members have no place on Fedai's advisory commitee even though it is recognised.

Forex dealers pointed out that the broker-cartel could have its way thus far as brokerage-sensitivity was pronounced largely in the cost and spread-conscious foreign and private sector banks. Reuters also did its cause no good by claiming that its interface was not a broking one, but rather an "electronic match-making". The Fedai -- after initially having backed Reuters -- and RBI, had to call for a review with Beba producing evidence to prove that Reuters' interface, albiet an "electronic broking" one, came under the purview of broking regulatory norms in the international markets.

Bringing competition to forex broking

The long-term goal of any market should be increased efficiency. The same is true of the forex markets. Reuters will be ushering in unprecedented competition into forex broking services, similar to the kind NSE introduced in equities broking. The result of that movewas a fall in broking fees by 75-90 per cent depending on the size and frequency of the transactions. Lower transactions should in the longer run bring about higher volumes, even in a highly regulated market such as currency.