The Fedai management committee has 33 members. Half of them are drawn from state-run banks with eight and four of the remaining from foreign, and private banks respectively. At its last meeting, the management committee opted for a compromise, a 25 per cent cut in `spot' brokerage and a 33 per cent cut in `forward' deals, effective from March 1. A Fedai circular to member-banks says that "after a careful consideration of allattendant factors and extensive deliberations....approved the revision of brokerage with effect from March 1 rather than vesting discretion with banks to fix their own rates," and promises a review within six months.

"The better players, and market makers are getting penalised for the ineffeciencies of a few," said IndusInd Bank's head-forex,and Forex Association of India (FAI) chairman, Moses Harding.

"There are fears that negotiable brokerage will lead to unfair practices. When the issue was put to vote at the last meeting, two-thirds voted for a cut in brokerage, not negotiability," Harding said adding, "the brokers must be a happy lot!".

Most of the foreign, private banks and reportedly even the State Bank of India, was keen on negotiable brokerage. However, stiff resistance from the majority of state-run banks saw some from the foreign and private bank segment, switch over. Over the previous eight months, the Bombay Exchange Brokers' Association led by its chairman and partner at Kanji Pitamber & Co's, Gautam Ashra, had been the leading broking lobby's cry against a brokerage cut, linked as it was of allowing Reuters' to offer its electronic matchmaking interface --`Dealing Spot India 2000-02 CUG' --on grounds that brokerage was high. In late January this year, the Fedai cut brokerage on `spot' and `forward' deals even as Reuters' failedto make headway.

Commenting on the latest Fedai move, Ashra said, "Banks cried themselves horse that brokerage is high. And they have now voted against negotiable brokerage at the Fedai meeting...what happened to all that noise about Reuters' being allowed an entry, of reduced transaction costs?", adding, "there are 110 authorised dealers. If five or six banks claim that they are market makers or `tigers' offering active two-way quotes, it does not make any sense".

"Negotiability," say others like Govindram & Co's, Rajesh Duseja, "cannot come through because a general feeling exists that everybody must survive". State-run banks have empanelled brokers and must spread deals amongst them, but fear that negotiability could lead to a situation wherein they are hauled up by the Reserve Bank if brokerage paid varies with other state-run brethren. Foreign and private banks are keen on negotiable brokerage because treasury heads get fancy bonuses.

Insight

Broking rates must come down
Asituation like this defies logic. The users of broking services should ideally be striving to reduce transaction costs as far as possible. Just the opposite seems to be happening. Inability to work out a favourable deal for banks questions the sanctity of Fedai itself. The steering committee is an eyewash and will only delay the inevitable lowering of broking rates, with or without Reuters. Brokers will only use the committee to ensure a status quo, while efficiency will suffer in the process.