Commodity brokers urge Sebi to drop new transaction levies

They say small brokers would either have to shut shop or merge with larger ones

Fearing a big and adverse impact, commodity brokers are meeting the Securities & Exchange Board of India (Sebi) next week to seek relaxation in the newly-introduced transaction fee and transaction charges.

Sebi had, ahead of the merger with it of the commodity derivatives markets regulator, the Forward Markets Commission (FMC), announced on September 7 a transaction fee of 0.002 per cent i.e. Rs 20 for every Rs 1 crore of turnover on commodity brokers and Rs 50,000 as a transaction charge. Both levies would be effective from September 28, the date of FMC’s merger with Sebi.

Till now, commodity traders were paying no such fee or transaction charges to FMC. They fear, they say, that it would lead to small brokers either having to shut or merge with larger ones. “The cost of trading in India is already one of the highest in the world and this would add to it. We have met Sebi once for a relaxation from these levies, and are planning to meet again next week,” said a senior member of the team in this regard.

“There is uncertainty among commodity traders. Small brokers would face more heat than large ones,” said a veteran.

Trade sources estimate the number of brokers at 3,400, with registration on more than one exchange. About 500-700 come under the small category, with daily business turnover of a few lakh rupees. “With cost of transaction already high, an additional fee would certainly add to the overall trading cost,” said Naveen Mathur, associate director (commodities and currencies), Angel Broking.

Commodity traders also need to pay an estimated Rs 1,500 for every Rs 1-crore transaction in futures. Sebi is trying to align the commodity and equity markets; brokers question its timing.“The commodity derivatives market is yet to overcome the levies of commodity transaction tax (CTT). While the levy as such is not wrong, its timing is not right,” said Jayant Manglik, president (retail distribution), Religare Securities.

The brokers' representative body, Commodities Participants Association of India (CPAI), has petitioned Sebi on taxes and other levies. "These additional levies should be exempted till the commodities futures market attains a comfortable level," said Ajay Kedia, managing director, Kedia Commodity.

 

Sebi has also fixed a minimum net worth criterion of Rs 1 crore and a deposit of Rs 50,00,000 for clearing members. CPAI has sought relaxation in these, too.

Brokers recall that imposition of CTT saw a steep decline in the turnover of commodity exchanges since it was made effective.