Small commodities brokerages closing shop

It’s shakeout time in the commodity brokerage space. Many small trading firms, which came up five years ago, alongside the commodities exchanges, have shut shop.

The latest addition to the long list of such companies is Jamnagar-based Madhusudan Commodities, which informed the exchanges a month ago that it has halted trading operations.

These closed brokerage firms are now selling their membership cards and are making a neat profit.

Soon after obtaining the regulator’s permission to launch commodity trading in 2003, exchanges had distributed cards to clients directly at a low price of Rs 2-2.5 lakh. Many individuals had also bought these cards as the exchange’s main focus at that time was to lutre more players into commodities trading.

The small brokerages are now selling these cards for Rs 20-25 lakh.

In contrast, large brokerages are prospering because of their good risk management capability and extensive knowledge dissemination. Religare Enterprises, Kotak Commodities and Angel Broking, for example, have almost doubled their commodities business turnover in the past few months.

“With limited resources adding little value to clients’ investments, smart investors have switched to bigger firms,” said Navin Mathur of Angel Broking.

“In the futures market, intermediation plays a dynamic role in updating customers with the current happenings and alarming about possible future developments. While big broking firms do have good intermediation practices with steady future growth plan. Small broking firms lack this expertise and jumps into execution directly to make a quick buck,” Shyamal Gupta, head, institutional business of Kotak Commodity Services, said.