Small bourses oppose higher net worth for brokers

The Federation of Indian Stock Exchanges decides to move Sebi.

India’s regional stock exchanges (RSE) are opposed to the recommendation of a committee formed by the Securities and Exchange Board of India (Sebi) to increase the net worth requirement for brokers, officials familiar with the matter have said.

The members of the Federation of Indian Stock Exchanges (FISE), representing 18 regional bourses, met on Saturday in Bangalore to discuss the issue and decided to approach Sebi against the recommendation. The market regulator has invited comments on the committee’s recommendations by June 14.

At present, the net worth of a stock broker is computed as capital plus free reserves, less non-allowable assets like fixed assets, pledged securities, member’s card and non-allowable securities.

On May 13, Sebi made public the recommendations of its committee to review the eligibility norms and other functional aspects for intermediaries like asset management companies, stock brokers, portfolio managers and custodians.

A sub-group of the committee, headed by Asit C Mehta Investment Intermediaries’ Managing Director, Deena Mehta, suggested raising the net worth requirement for RSE stock brokers to Rs 50 lakh now and Rs 1 crore by 2012. At present, the requirement is Rs 10 lakh.

“Small brokers will suffer because of this. There was no consultation with RSEs,” said an FISE official who attended Saturday’s meeting. “The net worth requirement should be based on some criteria like the exchange volume or the number of branches a broker has.”

For brokers at the two bigger exchanges — the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) — the sub-group suggested raising the net worth requirement to Rs 1 crore for corporate brokers and Rs 75 lakh for non-corporate ones. For BSE and NSE brokers, it wanted the requirement raised to Rs 3 crore by 2012.

In case of NSE, the net worth requirement for a corporate trading member is Rs 1 crore and Rs 75 lakh for a non-corporate one. For deposit-based membership in BSE, the minimum net worth for becoming a trading member is Rs 30 lakh.