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Sebi flags concern on brokers shutting shop

The regulator discussed the data that showed how a high compliance cost had forced 85% of brokers having capital between Rs 1-10 crore to shut shop

Shrimi Choudhary  |  Mumbai 

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In a meeting with representatives of stock brokers on Thursday, the Securities and Exchange Board of India (Sebi) has raised concern over loss-making brokers operating in the cash segment.

The regulator discussed the data which showed how a high compliance cost had forced 85 per cent of brokers having capital between Rs 1 crore and Rs 10 crore to shut shop. The number of brokers in the cash segment has halved in the past eight months — declining volumes in this segment and the high compliance costs have led to 3,187 brokers shutting shop, shows market data.

The meeting was part of the regulator’s effort to increase penetration of capital markets by improving the technology, to make the Know Your Customer (KYC) checking process fully electronic and the severity of penalties on regulatory offences by brokers. The meeting was attended by representatives of the BSE Brokers’ Forum and the Association of National Exchanges Members.

“Sebi also said it is in advanced talks with the Reserve Bank of India for a common KYC for the banking and capital markets, to reduce paperwork,” said a broker representative who attended the meeting. Sebi had ensured a single licence for equity and commodity brokers during this year, a move that will help the broking community reduce costs.

In the meeting, it also said it was investigating the complaints received on High Frequency Trade (HFT) in derivatives. Algorithmic trading or HFT refers to the use of electronic systems which can potentially execute thousands of orders on the stock exchange in less than a second. Sebi told brokers it wasn't against HFT but wanted a level field for all. It is also working on enacting new cyber laws for the capital market.

Ideas were also exchanged on how business can be improved on exchanges, especially in the cash segment. The issue was also discussed at Sebi earlier this month.

Sources said equity brokers had proposed a level playing field between non-banking finance companies and margin trading. At present, margin trading is charged at 15 per cent and it's 10 per cent in the futures and options segment.

Sebi is to meet commodity brokers on Friday, to theit proposals and concerns.

  • High compliance cost for broking industry
  • Measures to increase retail participation, better use of technology and ease of doing business
  • Level playing field for all customers in algo trading

First Published: Thu, April 21 2016. 22:45 IST