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Brokers closing shop as volumes shrink

Rakesh P Sharma & Savio G Pinto

Close to 450 members of both the National Stock Exchange and Bombay Stock Exchange are planning to surrender their membership or sell their cards in an attempt to exit the business. Sinking business volumes and falling brokerage rates are forcing them to close shop.

However, getting back deposits from the exchanges or selling their cards is proving to be a tough task. They are required to obtain a "no objection certificate" from Sebi to get back their deposits.

The capital market watchdog is unlikely to issue the NoC to those brokers who are yet to clear registration fees based on the turnover for a period of five years.

Brokers who had entered the broking business around 1997 are the worst hit with trading volumes having soared since and their liabilities running into billions of rupees. But with no cash in hand to pay the turnover fees, the brokers are stuck in a Catch-22 situation. They can neither wind up their businesses nor are they able to continue in the trade.

Between March 1 and May 31, at least 718 trading terminals of BSE's online trading system closed down, as per the latest monthly key statistics released by the exchange. It is learnt that another 400-450 applications for surrender of trading terminals are pending with the exchange administration.

On the National Stock Exchange too, a reasonably large number of trading terminals have shut down. NSE officials, however, refused to specify the number of members who have surrendered or applied for surrendering their terminals.

Going by the BSE key statistics, the number of active BOLT users fell to 6,417 at May-end from 7,131 at February-end. In line with the reduction in the number of terminals, the average daily volume in the specified group also dropped from Rs 45.97 billion to Rs 13.96 billion.

The average daily volume in B1 group scrips went down 93 per cent, from Rs 3.84 billion to Rs 260 million during this period.

With volumes plummeting, many brokers prefer to shut the sub-brokers' terminals. Further, brokers are not able to sustain the low brokerage rates with the low volumes.

Brokerage rates have dropped from one per cent a few years ago to the current level of 0.04 per cent to the end client, due to automation and increase in volumes.

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