Ahead of the Coal India IPO, the government has fast tracked the commission payment system for brokers. ?For smaller issues the commission will be released within a month while for large issues it would be 45 days,? disinvestment secretary, Sumit Bose said.
Earlier, the government used to take anywhere between five and six months to release the payments, sources said. With many public issues slated this fiscal, government is ensuring that brokers are adequately incentivised to get more retail applications.
?We have met Sebi-registered retail brokers across the country to address their concerns. One concern among the brokers are on delayed payments,? Bose said. ?We will adhere to time line henceforth.?
The government pays a fixed brokerage commission of 0.35% for getting retail investors and 0.15% for getting high net worth individuals (HNIs). The commission is paid on shares allotted and not on total applications gathered. For the Coal India IPO, the government is likely to pay about Rs 20 crore as commission to brokers for getting retail and HNI applications. This commission structure was introduced during SJVN IPO in May. Earlier, the commission paid used to be negligible as it was included in the fees of the book running lead managers.
?Earlier the brokers were at the mercy of merchant bankers,? said a broker who didn?t wish to get quoted. The new commission structure is aimed at attracting more retail applications. The government is encouraging retail participation in PSU IPOs to have a wider investor base. It is trying to lure retail investors by giving a 5% discount over the final issue price.
?The commission doesn?t mean much if you are not able to mobilise substantial application,? said Harshal Kulkarni, national sales head, Nirmal Bang. ?But whenever there is a good issue like Coal India, more people open new demat accounts, which is beneficial as they also start investing in secondary markets later on.?
?The commission is an incentive for the entire distribution value chain. It is not just the broking house which gets the commission; it has to pass it on to the sub-broker and the franchisees also,? said Jagannathan Thunuguntla, equity head, SMC Capitals.
?A broker gets only Rs 350 for getting a retail application of Rs 1 lakh. If the issue is oversubscribed the commission is even lesser. The reward is very less for the hard work that a broker puts,? said the same broker quoted earlier who didn?t wish to be identified. The government has set a target of Rs 40,000 crore through disinvestments in the current fiscal, of which only Rs 2,000 crore has been achieved so far.