Sebi rejects brokers' plea to set minimum brokerage rate

Feels that the move, if made, would be anti-investor

Market regulator Securities and Exchange Board of India (Sebi) has rejected brokers' request to set a floor to brokerage rates. Brokers are worried that cut-throat competition along with the entry of several discount brokerages in the market might be pushing down broking rates to unsustainable levels.

“The regulator has informally communicated to the brokers that it is not in favour of setting any floor or minimum brokerage. The regulator feels that the move would be anti-investor,” said a broker, who did not wish to be named.

A few months ago, BSE Brokers’ Forum had written to the regulator, asking it to set a minimum brokerage rate as competition from discount brokers was compelling full-service brokers to reduce rates. However, another broking association, Association of National Exchanges Members of India (Anmi), wanted the charges to be market-determined.

At present, broking houses are free to charge anything below an upper ceiling of 2.5 per cent. An email sent to Sebi did not elicit any response.

Margins are wafer-thin, as volumes are dominated by low-yield options, which contribute to about 80 per cent of the total market turnover. For the cash market, rates vary between 10 paise and 30 paise for delivery-based trades, and below five paise for intra-day trades.

According to Sudip Bandyopadhyay, CEO of Destimoney, the broking business has become increasingly unviable as there is no meaningful remuneration to compensate for rising costs. “A minimum floor is possible. Lower brokerages have led to a fall in service standards, which is detrimental to customers in the long run.”

Some brokers, however, believe it is difficult to justify a minimum rate. “Putting a minimum floor may not have the desired effect and brokerages may resort to malpractices such as ‘pass back’ of brokerage to sidestep this rule,” said Gopal Agarwal, president, Anmi.

“At the end of the day, it's the client who decides what he wants to pay for. This can be based on the quality of research or advisory and the overall experience of the client,” said a broker who didn’t wish to be named.

Discount brokers are attracting customers for their ability to charge a flat fee per trade irrespective of the trade value. It is an execution-only, web-based model and there are no research or advisory services offered.

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