Mumbai Capital

Sub-brokers shut shop, move to ‘authorised persons’ model

The number of intermediaries in the capital market continues to fall as stricter compliance coupled with lower margins, technology innovation, and falling business volume, have forced many smaller players to shut shop and look for alternative business options.

According to the data maintained by the capital market regulator, the number of brokers and sub-brokers servicing the nearly 2.45 crore investor accounts in the country has been registering a steady decline over the years.

The latest data by the Securities and Exchange Board of India (Sebi) shows that the number of sub-brokers fell by 13 per cent to 36,848 as on November 30, 2015, compared to 42,351 as on March 31, 2015. Simply put, 5,503 sub-brokers shut shop in just eight months.

While the number of such intermediaries has gone down, many have opted for registration as ‘authorised persons’ (AP), which refers to a person acting on behalf of a broker for market access and assisting investors in buying, selling or dealing in securities through such brokers.

“It is true that compliance costs have gone up and the larger brokerages have increased their reach across the country through online methods, which has impacted the sub-broker model. But, the number of ‘authorised persons’ is rising,” says Vinay, executive director (equity broking), Angel Broking Pvt. Ltd.

Incidentally, Sebi has itself stated in the past that many of the sub-brokers who have shut shop have actually moved to the AP model. Between April and September 2013, a total of 15,465 entities registered as APs, according to a statement issued by Sebi in January 2014.

“It is observed that increasingly the entities are seeking approval as APs rather than acting as sub-brokers,” said the Sebi statement.

The latest number of APs, which only need to be registered with the stock exchange and not with Sebi, could not be ascertained.

There has also been a gradual increase in the number of investment advisors and research analysts, a new category introduced by the capital market regulator a couple of years ago.

It is believed that some of the intermediaries, who have given up their registration as brokers and sub-brokers, have opted for the new category that allows them to offer only research and investment advisory.

As per the Sebi data, there are 359 investment advisors and 222 research analysts registered as on November 30. Both the categories have seen a significant rise in the number of registrations since March last year.

Most investors now trade using the online platform of discount brokerages like Zerodha, RKSV Securities Ltd, Trade Smart Online, and Samco Securities.

Discount brokerages typically charge a flat fee in the range of Rs 10-30 per trade, which is much lower than the transaction charges of the larger brokerages, who levy the brokerage as a percentage of the trade value.

The rise of algorithmic trading in the market has also made the survival difficult for many smaller market intermediaries. Algorithmic trading refers to using software to execute trades and only the larger brokerages have the funds to invest in such software and provide it to their clients.

There has been a slight fall in the number of registered brokers in the currency and equity derivatives segments as well. The shutting down of most of the regional stock exchanges have led to a fall in the number of brokers, but there will not be much impact of it as there was hardly any trading activity on the regional bourses.

There has been a gradual increase in the number of investment advisors, research analysts

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Printable version | Jan 17, 2021 3:48:53 PM |

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