The power is shifting now. Not so long ago, big brokerage houses would approach a sub-broker and tell him about the benefits of doing business with them. In sharp contrast, now they are trying to attract sub-brokers with a higher share in brokerage income.
“Today, established sub-brokers are inundated with calls from big brokers, who are offering them lucrative deals to attract their business,” said a market observer.
Reason: the cost involved in expanding the market will get reduced. And more importantly, the sub-broker has an established clientele, meaning revenues from day one.
Brokerage houses are retrieving data on sub-brokers from the Securities and Exchange Board of India’s (Sebi’s) website and approaching them with these lucrative offers.
Most of the large brokers are willing to pay up to 60 per cent of the brokerage earned. Even some sub-brokers with potential to generate higher revenues are being offered 70 per cent. Earlier, brokers would pay only up to 40-50 per cent.
The big brokerages are also willing to share 30-40 per cent of the expenses incurred by sub-brokers while working on business expansion. In the past, they would be unwilling to do so.
| THEN & NOW |
| * Earlier, brokerages would approach a sub-broker and tell him the benefits of doing business with them |
| * Earlier, top broking firms would not offer more than 40-50 per cent of brokerage, leave aside sharing expenses incurred by sub-brokers |
| * Earlier, brokerages used to ask sub-brokers for margin money to be part of them to do business |
| * Now, they are trying to attract sub-brokers with a higher share in brokerage income |
| * Now, they are not only offering 60-70 per cent cut in brokerages, but also sharing 30-40 per cent of the expenses incurred by sub-brokers |
| * Now, sub-brokers can join big brokerages and do business without any such requirement |
Earlier, sub-brokers were required to pay some margin money to be part of a big brokerage house.
And based on the margin money, they would be given a trading limit. But now, they can be associated with a big brokerage and do business without the margin money.
What has changed, however, is the credit period that is being offered. Earlier, a leeway of 7-10 days was being given to the sub-broker to make payments.
In the futures market, margin funding facility was also extended to them. Sources said at one time, top brokers would have outstanding positions of Rs 1,000-1,500 crore with their sub-brokers.
But now with all credit lines virtually stopped, clients have to cough up cash or pay by cheque for the transaction immediately.
