Dealers, sub-broker numbers on the decline

The number of dealers and sub-brokers, once the sole support for traders and investors, is slowly on the decline as trading volumes of brokerages continues to remain low. Even as the equity markets have turned around returning over 30% in 2014, brokerages have not seen a substantial rise in new investors leading to fewer recruitments into the dealing rooms. 

Dealers and sub-brokers are intermediaries who place trade orders on the exchange platform on behalf of brokerage clients and are the main link between the clients and the brokerage houses. But with online technology making trading easier, transactions on the exchange platforms are conducted by the clients themselves, doing away with the need for dealers to place orders.

As per data from Sebi. the number of registered sub-brokers and authorised dealers have been on the decline for the past four years. The number of sub-brokers is estimated to fall by over 40% to 45,351 by the end of fiscal 2015. Trading volumes in brokerages remain much below the 2007-08 levels despite an over 30% rise in equity markets, officials said.

At present, as per industry estimates, dealers and sub-brokers account for about one-third of the total work-force in the brokerage industry. This is down from the 50% seen in 2008-09, officials said. This could slide further as internet trading, including the mobile platform, gains favour among investors.

“The new investors who came into the market last year (2014) have come largely through the online medium – through desktops, tablets and the mobile phones. In fact, now nearly 50% of our trading volumes are generated through online trades,” said Satish Menon, executive director, Geojit BNP Paribas Financial Services.

A substantial amount of these traders are day-traders in the retail and high networth investor (HNI) trading in the futures & options segment, said industry officials, who square-off positions at the end of the day. These traders are known to prefer trading directly through the online and mobile platform without going through dealers. Those who take delivery positions are largely existing clients of brokerages, who prefer to place orders through dealers.

The year 2007-08 saw a sharp rise in the dealer network as trading volumes in brokerages shot up. Client activity ratio stood at 12-13% as opposed to 3-4% today. However, post the downturn in 2008-09, the dealer networks started shrinking as investors moved out of the equity markets. As brokerages expanded their businesses to include the PMS, advisory and credit business, dealers were soon replaced by relationship managers (RMs) who doubled up as dealers and financial advisors to the clients. 

This continues till date with many large brokerages preferring relationship managers capable of advising clients on all kinds of financial products and needs rather than just executives punching in orders, analysts said.