Curbs on sub-brokers may hit retail interest

The ban on sub-brokers from issuing contract notes and making cheque payments directly for sale or purchase of shares will reduce retail clients' participation in capital markets, say sub-brokers.

In an amendment of the Securities and Exchange Board of India (Sebi) (stock brokers and sub-brokers) regulations, 1992, Sebi on September 23, 2003, had barred sub-brokers from issuing purchase and sale notes to the clients. Instead, sub-brokers will have to enter into a tripartite agreement with their clients and the main Sebi-registered broker.

Officials of the Ahmedabad, Vadodara and Saurashtra stock exchanges are meeting today to discuss the implications of the Sebi order. Sub-brokers here in Ahmedabad said 90 per cent of the retail business is done through sub-brokers.

"Now, we will not be able to issue a bill that shares have been bought or sold," said a sub-broker. Sub-brokers maintain that they still get their commission, but activity in the stock market will go down by at least 40 per cent as clients will hesitate to directly approach a broker.

"The broker will give us the fixed commission and he will also get his commission. However, the flexibility that a sub-broker can provide to a client cannot be given by a broker," said another sub-broker. He added that in many cases sub-brokers manage funds for clients even if they do not have the full amount for which they have purchased shares.