Now, BSE opposes higher net worth for brokers

The Bombay Stock Exchange (BSE) is not in favour of increasing the minimum net worth for brokers, as suggested by an expert panel of the Securities and Exchange Board of India (Sebi). The exchange is trying hard to increase membership and expand its reach by reducing charges.

Asia’s oldest stock exchange had written against the suggestion to Sebi, people familiar with the matter said. An e-mail query to BSE’s corporate communication department was not answered.

On May 13, Sebi announced the recommendation of the committee to review eligibility norms and other functional aspects of various stock market intermediaries. A sub-group of the committee suggested raising the net worth requirement for brokers of the two big stock exchanges, the BSE and the National Stock Exchange (NSE), to Rs 1 crore for corporate members and Rs 75 lakh for non-corporate members. It wanted this to rise to Rs 3 crore by 2012.

The suggestion will not impact NSE brokers, as the exchange’s net worth requirement is Rs 1 crore for corporate members and Rs 75 lakh for non-corporate members.

However, it will impact members of BSE, where the minimum net worth requirement for becoming a trading member is Rs 30 lakh. According to brokers familiar with the matter, the Sebi committee’s suggestion has hurt BSE’s ongoing membership drive. Many brokers who wanted to become BSE members have become cautious and are awaiting clarity. Before the Sebi committee’s suggestion BSE’s membership drive, under which the exchange was offering membership against a deposit of Rs 10 lakh, was receiving a good response.

Even the BSE Brokers’ Forum, which represents 540 BSE members, is not in favour of the proposal. According to a veteran BSE broker, the forum has told Sebi that there was almost negligible risk of default by brokers due to robust settlement and risk-management systems. Moreover, the gross outstanding business of a member at any point of time could not exceed 12.5 times his base and additional capital requirements, the forum had told Sebi, the broker said.

The Federation of Indian Stock Exchanges (FISE), which represents regional bourses, has also opposed the Sebi sub-group’s suggestion to the increase net worth requirement for their members to Rs 50 lakh by 2010 and Rs 1 crore by 2012. At present, the requirement is Rs 10 lakh.

Sebi had invited comments on the committee’s recommendations by Monday.