The Securities and Exchange Board of India (Sebi) is considering a proposal to allow trading members in the currency segment of the stock exchanges to participate in their respective equity segments. One of the options being discussed is to allow a fast-track registration process involving a shorter application format. ‘Trading members’ is the official name for brokers who facilitate trades of investors for a fee.
“The proposal has come from the market. It may help the newer exchanges,” said an exchange official familiar with the development.
The proposal submitted to the regulator by some industry bodies, including the Association of National Exchanges Members of India (Anmi), will be a potential game changer in the exchange space and will give a head-start to MCX-SX and United Stock Exchange, when they start trading in equities. It will also benefit members registered only with National Stock Exchange’s (NSE) currency segment, but not with its equities segment by helping venture into a deeper market.
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At the end of July 2012, MCX-SX had 751 members and saw participation from 714 towns and cities across India, according to the bourse’s website. While NSE’s currency segment had around 800 members, United Stock Exchange had some 450 members.
At present, if an exchange has to go for fresh registration of brokers, it takes two to three months, say insiders. “First the members have to send an application to the exchange. After doing the first level checks, this is forwarded to Sebi. Sebi then gets back with queries, if any. If everything is in order, one can hope to start in two to three months,” said a senior official with a currency exchange. To repeat the process for a different segment will be duplication, this official added.
Naresh Maheshwari, president, Depository Participants Association of India and a director at Anmi said the proposal, if cleared, will help reduce compliance costs for brokers. “The credentials of the members are available with Sebi. So, what is the problem in allowing him to trade in the new segment provided he meets the eligibility criteria,” Maheshwari said.
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According to Maheshwari, Anmi had also proposed to vest the process of inspection of brokers with an independent body. “At present, there are four exchanges. Each comes for inspection separately. In addition, there are other bodies like depositories and clearing houses. This is causing a lot of inconvenience to brokers. We want this task to be entrusted with a body acceptable to all exchanges so that there aren’t separate inspections from each,” he added.
According to the latest numbers available on its website, NSE has 1,094 members in the equity segment. While networth criteria for both equities and currency segment is same at Rs 1 crore, the security deposit varies significantly. While the NSE currency segment requires trading members to deposit Rs 2 lakh in cash and a further Rs 13 lakh in other instruments, membership for trading and self-clearing in the cash segment of equities requires a deposit of Rs 85 lakh. Besides, members also have to deposit an additional Rs 40 lakh with the clearing corporation. If the member wants to operate in the futures and options segment, an additional deposit of Rs 25 lakh is required.
BSE also lists over 1,080 members on its website. It mandates a deposit of Rs 10 lakh of which Rs 1 lakh is payable upfront. The older exchange also has a lower net worth requirement of Rs 30 lakh.