With a few banks having raised eligibility criteria for stockbrokers transacting with them, a fairly large number of brokers is likely to be hit. The new conditions laid down require a brokerage needs to have a minimum net worth of `30 crore and a daily turnover of `10,000 crore to be able to transact for them.
The main reason for tightening the eligibility norms, say industry observers, is to prevent defaults. This is possible since the orders given by the bigger banks can be reasonably large – about `2 crore. Sources said a couple of banks have faced such problems recently when brokers were unable to meet their payment obligations.
The broking community claims the minimum net worth set by the banks is way higher than the current levels of `25 lakh and `3 crore required for them to be registered with the BSE and NSE respectively. They point out that large public sector investors, including Life Insurance Corporation (LIC) have not put any entry barriers. Lawyers are disagreed on whether banks are permitted to specify the net worth criterion for brokers or not.
In a letter addressed to the finance minister and capital markets regulator Sebi, brokers say the new norms would mean 80% of the brokers, currently dealing with these banks, would be dis-empanelled.
With several brokerages having shut shop over the past few years following a steep drop in charges, even for institutional brokers, and the onset of online trading, it hasn’t been easy going for the community. Sebi data shows the number of registered brokers has fallen to 3,189 in February 2016.
While institutional clients largely deal with big brokerages, retail investors are increasing switching to discount brokerages that charge flat fee from them irrespective of the size of the order. As per Sebi regulations, a broker can charge a maximum fee of 2.5% and there is no floor.