With trading volumes declining, a majority of the broking houses are finding in difficult to stay afloat. The advent of depository trading has squeezed the margins further for them.
Chandrakant Kamdar, wholetime director of Gujarat Securities, spoke to Denny Thomas on the predicament of the broking houses. He was of the view that the co-existence of intermediaries, issuers and investors is essential for the growth of capital markets. Excerpts from the interview:
How is the broking community coping up with the pressures?
The volumes at the bourses have come down during the past two years. Also, most of the business taking place has been speculative.
There's hardly any investment-based buying. In such an atmosphere, the broker's margins have come under considerable pressure, and in some cases, the commission agreed to has been as low as 0.1 per cent.
What comes as a surprise is that this is the only business which does not have uniform practices outlined.
It does not have a representative body either. It is surprising that for the same services, different brokers charge different rates.
Also, it is difficult to imagine that even the norms laid down by the Securities & Exchange Board of India are not followed strictly.
Thus, even though the regulator has made it mandatory that all institutional trades are routed through custodians, brokers don't do so often.
At times large institutions insist on delivery-versus-payment (DVP) mode of settlement.
This means that the brokers have to fund the trade which not only puts additional burden on them but they also end up accepting greater risks.
Why isn't such arm-twisting reported to Sebi?
This is where the brokers needs to come together and form a representative body which can take up such issues.
Currently, there is no such organisation.
Individually, the brokers do not complain because they fear that this could result in loss of business.
The issue, therefore, remains unaddressed.
There has been a lot of debate of whether margins should be imposed on institutional trades or not. What is your view?
There is a lot of disparity between retail and institutional investors when it comes to levying margins.
While Sebi has made it mandatory for the retail players to pay the levy, for institutional trades, it has been left to the brokers discretion.
Thus the institutions are exempted from paying margins.
This disparity should be done away with and margins should be levied for both the institutional and non-institutional trades.
Moreover, the National Stock Exchange and the Bombay Stock Exchange have different norms for imposing ad hoc margins. This should also scrapped and the regulator should have a final view on all such levies.
What can bring back the retail investor?
Retail investors form the backbone of the market and it is imperative that they return.
This is also important as far as the broker's survival is concerned.
The public sector disinvestment programme, through which the government plans to raise Rs 5,000 crore, could be used to bring the retail investors back.
If the government decides to offer a large part of the offering at an attractive price, they will be back _ which will also benefit the brokers.
