The Securities and Exchange Board of India (SEBI) will soon approve a single registration mechanism for brokerages that are present in both commodity and equity segments.
The capital market regulator is expected to give its approval to the plan in its board meet scheduled next month.
The move, once implemented, will benefit a large number of market intermediaries who currently have to block separate funds in the form of net worth and base minimum capital for their stock and commodity broking entities. With a common registration in place, separate allocation of funds can be done away with.
Benefit for investors
For investors, it could mean a single registration form and one-time KYC – Know Your Client – process to allow them to buy shares as well as trade in commodity derivatives thereby making it easier for individuals and institutions looking to invest in both.
“The memorandum has been submitted to the board for a common single registration for commodity and equity brokers. It will be on the agenda when the board meets next month,” said a person familiar with the matter.
Incidentally, a single registration and complete fungibility between the two segments was always part of the long-term plan of SEBI ever since the erstwhile Forward Markets Commission (FMC) was merged with the capital market regulator in September 2015.
Market participants, meanwhile, say that a single intermediary for commodity and equity trading will benefit investors more than the brokerage itself. Most of the large well-known brokerages have a presence in both the segments.
“Apart from the benefits of a single net worth and capital requirement, it will lower the operational cost for an intermediary but the investor will be the real winner,” said Chintan Modi, Executive Vice President, India Infoline.
“A single KYC will allow investors to trade in both commodity and equity. The collaterals and margins that an investor keeps with the broker can also be used against his position in either segments. Currently, clients have to keep separate balance and ledger for commodity and equity since the entities through whom they trade are separate. That practice can also be done away with,” Mr. Modi said.
Networth requirement
A clearing member in the debt and equity derivatives segments of BSE requires a net worth of ₹3 crore while those in currency derivatives segment require ₹10 crore. Members in the currency and equity derivatives further require a deposit of ₹50 lakh.
In the commodity markets, the base minimum capital is ₹50 lakh for members of Multi Commodity Exchange of India (MCX) with algo trading and ₹10 lakh for those without it. The initial security deposit is ₹1 crore for professional clearing member and institutional trading cum clearing member. The admission fee for the various categories of members ranges between ₹7.5 lakh to ₹25 lakh.
The reform will be just one more in the long list of reviews done by the regulator over the past year and a half.
Since the SEBI-FMC merger, the regulator has reviewed and amended many regulations related to commodity trading, exchanges and intermediaries to bring it on par with the norms for the equity segment. For instance, trading and surveillance norms for commodity exchanges were tightened after the bourses came under the regulatory purview of SEBI.
