With the networth criteria at the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) being high, brokers are taking the regional route to become trading members of the two national exchanges.
Out of the 27 applications filed with the markets regulator Securities and Exchange Board of India (Sebi) for stock broker registration, a majority of them are for getting registered with regional stock exchanges.
Most of the regional exchanges have floated subsidiaries, which have become trading members of BSE and NSE. By becoming a member of any of these exchanges, one can become a sub-broker at the national exchanges. For example, Cochin Stock Exchange(CoSE) has floated an entity called Cochin Stock Brokers Limited, which is a member of BSE and NSE. Similarly, Indore-based Madhya Pradesh Stock Exchange has MPSE Securities Limited and Bangalore Stock Exchange has BgSE Financial Services Limited.
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Out of 27 applications Source: Sebi
While most of these exchanges are yet to start trading, experts say that the move is aimed at attracting brokers for more volumes once they start their own trading platforms.
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The networth criteria required for being a member at the Cochin Stock Exchange is only Rs 4.5 lakh compared to Rs 1 crore required by BSE and Rs 3 crore by NSE to become their members. MPSE requires its members to make a one-time investment of Rs 2 lakh and DSE requires Rs 13 lakh.
“The smaller brokers who cannot buy membership of national exchanges are taking this route,” said Motilal Oswal, chairman, Motilal Oswal Financial Services, a BSE and NSE member. The other reason is that such membership helps distribute initial public offers (IPOs).
“While the lower networth criteria is of course a reason, the other reason could be revival in primary market,” said a stockbroker on conditions of anonymity. He said one needs a broker licence for distribution of IPOs and follow-on offers. By becoming a broker at any of these regional exchanges, they can do IPO distribution.
“A number of public issues are lined up and a good retail demand is expected for PSU follow-on offers. So, there would be lot of people interested in this line of business as well,” he added.
Oswal said that at a time when clients are demanding a lot of value-added stuff, these subsidiaries or entities are offering plain vanilla broker terminals.
Market players said this could impact a number of sub-brokers opting to get registered with large brokers. Oswal said, “We provide a host of value-added services to our sub-brokers which include research, advice and products and it (regional stock exchanges) will still be a niche segment of brokers.”
He added that the firm has seen a 25 per cent month on month rise in the number of sub-brokers. Angel Broking is yet another with one of the largest networks of sub-brokers. It has close to 2,315 sub-brokers registered with itself.
Among the regional exchanges witnessing immense interest from brokers are Madhya Pradesh Stock Exchange, Delhi Stock Exchange, Calcutta Stock Exchange and Cochin Stock Exchange. With demutualisation at most of these exchanges getting completed, they are now looking to revamp themselves with a new trading platform and tying up with larger exchanges.
A clutch of regional stock exchanges are actively looking at re-inventing themselves. Most of them have been lying defunct for lack of volumes and in some cases no trading at all. At least three regional exchanges are planning to launch their own trading platforms soon. This is apart from the Interconnected Stock Exchange of India, which is promoted by some regional stock exchanges.
The Madras Stock Exchange has signed a memorandum of understanding with NSE that allows its members to trade on India’s biggest stock exchange. The Calcutta Stock Exchange (CSE) was the first regional exchange to enter into such a tie-up with BSE, which picked up a 5 per cent stake in it. Sources said that Cochin Stock Exchange and Bangalore Stock Exchange too are looking at similar roadmaps.