Forex Brokerages: Wining & Dining, Living The Good Life With A Vengeance!

Updated: Nov 17 2003, 05:30am hrs
Kanji Pitamber died at the age of 91. In his lifetime, he was fitness personified. He was the founder of one of Indias oldest forex brokerage houses, Kanji Pitamber & Co. It is almost 80 years old. His grandson Gautam Ashra, now runs the show at Kanji Pitamber & Co.

My grandfather died in 30 seconds flat at 91. No sufferings at all in his life. That is because he ran from bank to bank in the Fort area, taking orders on currencies, dollars and pounds , says Mr Ashra.

Ran Meaning Yes, he ran because there were no hotlines in those days. From Chartered Bank to Bank of Baroda. At times, he ran real hard to overtake another broker lest that fellow get ahead with his order. But I will not live all that long. I am 48 now, and at the rate I am wining and dining bankers, I will go soon! says Mr Ashra, and guffaws loudly.

Why does a forex broker like Mr Ashra have to speak of life and death when asked for his views on the business he knows best It is a question of survival in forex brokerage. The number of brokerage houses were 125 in 1998-99, when brokerage was opened up by the Foreign Exchange Dealers Association of India (Fedai). Now it is just half that number. Around the same time, Reuters came into the market with its electronic spot broking interface. Is there a link between the two Yes, but more of that later.

Another factor was the centralisation of bank treasuries. State Bank of Indias (SBI) was centralised in Kolkata. SBI has shifted its treasury to Mumbai since.

There are about 6-8 forex brokers in Kolkata now, down from about 40. Similar moves by bigger banks in Delhi and Chennai has seen numbers in these respective places come down to three from 10, and to three from nine.

In Mumbai, the same is now at about 15 from 21, though the reasons for this shrinkage are different. The total number is about 60-odd countrywide, but they are all in their twilight zone

So why are the numbers what they still are at For there is really no room for these many players.

The reasons here are more because of regulatory issues. After the Harshad Mehta affair, the Reserve Bank of India (RBI) said that no bank can put through more than five per cent of its business through a specific money and securities dealer. That means a bank, at any given time, has about 20 empanelled brokers. Banks, to be on the safe side and due to lack of regulatory clarity, used the same principal for forex brokers. Not five, but say not more than 20-25 per cent to any one. This has proved to be a lifeline for many a broker. Volatility also helps. A sharp five paise movement in the rupee-dollar forces many banks to work the wires rather than an electronic interface like the one offered by Reuters.

Who can be a forex broker Frankly, anybody who knows what it means to be one. There is no minimum capital requirement. Although, from a business point of view, Rs one crore is good enough. Licensing was done by the central bank. Now the Fedai does it.

Audits are by any chartered accountant. These reports are filed with Fedai, and the inspection and audit department of banks. Whispers have it that some of these players have a negative networth. But who cares These players do not have any regulator sniffing at them, unlike stock brokers on the bourses. The reason is that they are not part of the settlement system, and therefore, are risk-free on that account. Though they are exposed to capital loss if a quote goes wrong.

Many are legacies. Hotlines are still paid for by forex brokerages. Not the banks. Why In the old days, these houses fell at the feet of banks to have access to telexes and STD lines. For instance, SBI bought the Sterling Pound. Banks in Bombay sold dollars.

There were more telexes and phonelines with banks. So, a broker had to pitch tent at a bank to know what the inter-city market was like. Overtime, they profited. So much so that the bureaucratic insides of state-run banks ensured that forex brokers were used to greasing telephone linesmen and various officials at the exchanges to get a quick hotline facility. So banks outsourced hotlines to brokers. But one who pays, gets to keep. Hotlines have stayed with them. They service it. Some have about a 100 such lines which is unlike globally, where the costs are shared or paid for by banks.

And on brokerage itself. It was opened after banks complained that it was high. Who fixed this brokerage in the first place

Bankers: who were managing committee members of Fedai. Not the brokers! Brokerage had to be freed if the Reuters offering was to make sense to banks. Why was high brokerage fixed by banks Because, some people were wined and dined.

They say that more things change, the more they stay the same. The likes of Mr Ashra will wine and dine with a vengeance now. May they live long to savour the good life!