The low fee exchange

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Bombay Stock Exchange’s membership drive by lowering the entry fee has run into serious trouble with SEBI, reports Harsha Raj Gatty

WITH ECONOMIC volatility still looming in Dalal Street, the stock trading platforms are experimenting with new schemes and offers to raise their volumes. Recently, the Bombay Stock Exchange (BSE) slashed the membership and fee requirement of its cash segment from Rs 1 crore to just Rs 10 lakh. “By offering this exciting pricing scheme we intend to make it affordable to all those aspiring for BSE membership,” says Madhu Kannan, managing director and CEO, BSE.

The move may have been received well by the market but the market watchdog, Securities and Exchange Board of India (SEBI), doesn’t agree. A SEBI norms review committee recently proposed that the minimum net worth capital of an institutional broker needs to be raised to Rs 1 crore, and of individual brokers to Rs 75 lakh. Gradually the minimum net worth could be hiked to Rs 3 crore for the BSE and NSE, and Rs 1 crore for the Regional Stock Exchange.

Many fear low entry fee may attract fly-by-night operators

Welcoming SEBI’s proposal, several brokers point out that lower fee may increase the chances of fly-by-night companies to make short term gains. Others believe that with such low investment it will be difficult in the long run for the new entrants to sustain market volatility. Arun Kejriwal, founder of Kejriwal Research and Investment Services, too sees such a possibility: “Defaulters could indeed ruin the scheme in the absence of a proper monitoring mechanism, though a minimum net worth of Rs 33 lakh, should restore the investors faith in their brokers.”

The new fee regime is not expected to affect National Stock Exchange (NSE) as majority of the traders are high net worth individuals, institutions and foreign investors. “We will see an impact on the BSE markets as it depends on small and medium trading members,” argues stock analyst Nakul Shethy.

 

Affordable trading?
Madhu Kannan, CEO & MD, BSE

Slashing the entry fee has come as a boom for sub-brokers, who can now become members of the BSE. Earlier, smalltime players were preferred to subbrokers — even though they had to pay a certain percentage to the brokers — because of the high capital investment. But once the new membership tariff comes into force, the financial burden on small and middle-level broking firms will be much reduced. “The new scheme will bring in big money from tier-II and tier- III cities and give sub-brokers and traders from the remote areas a chance to interact with the BSE directly,” says market analyst Hemen Kapadia, CEO, Chartpundit.

The new BSE membership drive also appears to be in response to the Multi Commodity Exchange (MCX) entering the retail segment. Already, the BSE — faced with shrinking trade volumes — risks losing some of its members to MCX, which is ready to offer membership for a small entry fee. “As a broker has a much larger profile than a sub-broker, it will help the new members bargain better with clients,” says trader Sandy Pinto. The market is clear on its road map, only if SEBI was convinced.

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