Bse Calls For Egm To Discuss Dumping Of Admission Fee

The Bombay Stock Exchange (BSE) corporatisation plan is set to kick off shortly. The exchange has called for an EGM to discuss the removal of the Rs 2.5 lakh admission fee charged by the bourse from its members.

In a related move, the exchange has appealed to the Securities and Exchange Board of India for a re-look into the contentious issue of payment of registration fees by a brokerage while turning corporate.

According to existing norms, while a brokerage pays initial registration fees, a further fee is levied if the brokerage (sole proprietary/partnership) later turns into a corporate.

The exchange may also consider changes in the rules and regulations relating to corporates, with the BSE top brass currently exploring the case of a corporate entity holding more than 2-3 membership cards. The trading ethos at the BSE is of a joint family brokerage outfit, and this runs the risk of breaking up when the individual/partnership cards are converted into a single corporate entity.

 

Latest data from the exchange shows that out of 636 broker members, there are 531 who are active members, with some cards de-activated due to the broker's death, or inability to trade after being declared a notified party following the securities scam in 1992. Of this, 94 members have already turned corporate since the exercise commenced in 1994-95.

The move was expected to receive a major fillip with an announcement through the union budget of the one-time exemption in the payment of capital gains tax to be paid by the member while turning corporate. But with the political uncertainty surrounding the passing of the finance bill and the budget, the exchange was obviously hesitant in moving ahead with its corporatisation plans.

According to the BSE president MG Damani, the exchange will now move ahead with its plan. "We hope to see 500 members turning corporate by the year-end,'' he said. The exchange has already formed a 6-member core group to look into the corporatisation plan and advise brokers on the tax structure for the new entity.

The advantages of turning corporate are as follows:

It would bring in perpetuity to the firm when/if the broker-member expires

It ensures a stronger balance sheet as there is greater capital in the books of the company. With the stock broking/financial business evolving, there would then be greater safety for the exchange and the overall capital markets

The capital adequacy for the individual firm at the BSE is 3 per cent, while for the company it is higher at 6 per cent,

As time passes, the company which has a track record for paying dividend for 3 years, could tap the markets for more funds. Banks/financial institutions have found security in dealing with these entities

Lastly, the accounting principles and auditing requirements will be stringent and more streamlined.

Prior to the budgetary announcements, brokers would have to pay a tax of 20 per cent on the capital gains on transfer of the brokerage card and assets.

Taking the historical value of the card, and after calculating the assets, brokers would end up paying a substantial rate of Rs 20 lakh as tax for the transfer.