Daily disclosure of brokers data mooted

A sub-committee of the Securities and Exchange Board of India (Sebi) secondary market advisory committee has recommended daily and aggregated disclosure of key information about brokers including aggregate open proprietary positions and value at risk and number of open positions.

It has also said that optional credit rating of brokers, at the discretion of the brokers, may be introduced.

Net worth, it said, should be prescribed as an eligibility or licence criteria for each specific business a broker engages in and net worth slabs for each activity of business should be introduced.

"This is to minimise operational risks, and ensure minimal investments necessary to run a credible organisation and sound processes."

The committee said the current net worth definition adopted by exchanges is appropriate, but should have certain modifications.

For net worth computation, the sub-committee classified the activities into three broad categories "" basic broking activity, advisory business (merchant banking) and asset handling business (margin trading, securit-ies lending and borrowing, underwriting, depository participant, portfolio management).

The sub-committee recommended net worth slabs for the above activities as follows in the following manner "" base licence for basic broking activity would be Rs 50 lakh, for proprietary and agency broking Rs 100 lakh, for pure advisory business Rs 25 lakh, and for asset handling it would be Rs 50 lakhs for each of the activities under it.

The committee also recommended that the above net worth requirement for the brokers should be worked out on a cumulative basis.

In terms of implementation, the sub-committee felt that the existing brokers may be given a time of three years to enhance their net worth to meet the above requirements.

However, any new company or existing company wishing to undertake fresh business should be required to meet the above net worth criteria.

The sub-committee also recommended that brokers should be required to submit a net worth certificate on an annual basis within 60 days from the tax date.

Brokers should not receive the benefit of exposure on their proprietary dealings based on their clients money and securities. Moreover, "proprietary trading" should be clearly defined.

A requirement should be imposed on the brokers to clearly state the purpose for each deposit taken by it on the receipts for such deposits and these receipts must be handed over to the clients.

Deposits for margin money should be distinctly identified so that the clients get protection up to Rs 10 lakh under the Investor Protection Fund in case there is a default of a broker.