Nearly 7,000 sub-brokers, together with 140 brokers, operating in the cash segment have shut shop in FY13 on the back of dwindling activity in the cash market. This was in a year when the benchmark indices gained more than 8%.
The number of sub-brokers totalled 70,242 at the end of FY13, down from 77,142 in the previous fiscal. This number was as high as 83,808 at the end of FY11.
?Retail participation in the cash market is left wanting, resulting in revenue pressure among brokers. It is but natural, then, that the sub-brokers are finding the going tough,? said Trivikram Kamath, executive VP, operations, finance & technology, Kotak Securities.
Brokers tap sub-brokers to expand their network. In the past few years, brokers have been offering several incentives to sub-brokers such as waiving off terminal trading charges and tweaking revenue-sharing arrangements in favour of the sub-brokers.
?The partnerships between sub-brokers and brokers work well only when the market sentiment is bullish. If the business is slack, no amount of incentivisation will translate into business,? said Girish Dev, executive director, Capital First.
Brokers have been hit hard by dwindling cash market volumes, which used to provide a sizeable portion of their revenues before the global financial crisis hit home in 2008.
Broking rates for cash delivery currently hovers between 0.08% and 0.25% of the total traded turnover, much higher than the rates for intra-day trades (0.01%-0.03%) and futures trades (0.005%-0.015%).
The average daily cash turnover on the NSE stood at R10,833 crore, the lowest in the past five years, data put up on Sebi show.
The average daily cash turnover for the previous four fiscals stood at R11,325 crore, R16,959 crore, R14,029 crore and R11,289 crore, respectively. Similarly, average trade size has declined 19% to R19,907 in FY13 from R24,608 crore in FY10.
Retail participation has been subdued for nearly three years now. Brokers have tried to woo back retail investors by introducing products such as equity SIPs, but in vain.
Industry observers believe retail investors have become risk-averse and are looking at products that will give decent returns without compromising on the safety of the principal invested.
Interestingly, the number of brokers in the derivatives segment has risen to 2,957 in FY13, almost double of what it was five years ago.
Industry observers, however, believe that the brokers operating in this segment are largely the prop traders that have limited themselves to derivatives trading.
The options turnover contributed about 75% of the overall market turnover in FY13, which marked a significant upward move from less than 60% in FY11.