Commodity brokers urge Sebi to exempt transaction fee, charges

Call for a meeting to discuss the possible impact on them; meeting may happen next week

With fears emerging among both small and large traders alike, commodity brokers are meeting the market regulator Securities & Exchange Board of India (Sebi) next week seeking relaxation in the newly introduced transaction fee and transaction charges.

Ahead of the merger of the commodity market regulator Forward Markets Commission (FMC) with it, Sebi in its revised guidelines on September 7 levied transaction fee of 0.002 per cent i.e. Rs 20 for Rs 1 crore of turnover on commodity brokers. Apart from that, Sebi also levied Rs 50,000 as transaction charges for commodity brokers. Both these charges would be effective from September 28, the actual date of FMC’s merger with Sebi.

These new charges irked commodities traders as they were paying no such fees and transaction costs to the FMC. So, they fear that sooner or later, small brokers would either have to merge with large brokers or shut down their shops resulting into a consolidation in the commodity broking space.

“So far there is no such levy to the FMC. But, Sebi introduced them which would certainly add to the cost of trading which is already one of the highest in the world. We have met with Sebi once seeking relaxation from these levies, and also planning to meet once again next week, although date is yet to be finalized,” said a senior member of the team scheduled to meet with Sebi.

Although small, yet the levy of additional transaction fee would increase overall transaction cost. Transaction cost in India is already one of the highest in the world, even higher than trading costs levied in many developed countries.

“There is an uncertainty among commodity traders with strict regulations and penalty provisions following brokerages falling directly under Sebi (previously brokerages were regulated by the FMC through exchanges). Small brokers would face more heat than large ones,” said an industry veteran.

Trade sources estimate total number of brokers at 3,400 with cross registrations with more than one exchanges of which around 500-700 fall under small category with daily business turnover in few lakhs.

“With cost of transaction already high, additional levy of transaction fee would certainly add to the overall trading cost further,” said Naveen Mathur, Associate Director (commodities and currencies), Angel Broking.

Including brokerages, commodity traders are required to pay an estimated Rs 1,500 for Rs 1 crore transaction in futures. While Sebi tries to align commodity and equity markets together but, brokers question its timing.

“The commodity derivatives market is yet to overcome the levies of commodity transaction tax (CTT) which raised transaction cost. While the levy as such is not wrong its timing is not right,” said Jayant Manglik, President (retail distribution), Religare Securities Ltd.

Meanwhile, brokers’ representative body Commodities Participants Association of India (CPAI) has already taken up taxes and other levies with Sebi.

“These additional levies would make cost of trading very high and therefore, should be exempted till commodities futures market attains a comfortable level,” said Ajay Kedia, Managing Director, Kedia Commodity.

Apart from aforementioned new levies, Sebi has fixed networth of Rs 1 crore and deposit of Rs 50,00,000 for clearing members. CPAI sought relaxation in the net worth and deposit criteria as well.

Meanwhile, brokers do not rule out the repeat of CTT charges impact, which saw steep decline in turnover of commodity exchanges eve since the tax on commodity transaction was made effective last year.