BROKERS - SOME ARE FIGHTING, SOME HAVE TAKEN FLIGHT!
By Ruma Dubey
A few years ago, seems like a part of history when you had to call up your broker, give him your order and then wait patiently for him to revert back, with the quantity he got and the price to be paid. It was a task, getting through to the broker’s phone numbers, especially during the Budget. But the broker was an integral part of the household; like a doctor, who would be treated reverentially whenever he came home or to the office to deliver shares or get it transferred or to collect his brokerage. That was done at a time when there was no internet, no online tracking, no demat accounts and no mobiles! Life like that seems impossible now but yet, we all survived!
Today, at the click of a mouse, a stock is bought or sold and the broker is a faceless organisation. There is no “human” element anymore. There is no single individual today but an organisation which, depending on your networth, might assign you “relationship manager”. So one cannot help but wonder where have all these brokers disappeared? Today, are there no brokers at all? And do you remember that huge clan of sub-brokers? Kahaan gaye woh log?
The advent of technology and internet has made life very easy for us, buying/selling stocks have never been this easy. Yet, it has rendered many jobless. That apart, organised cluster of broking firms are also finding the going to be very tough, given the dwindling cash business on the bourses. In FY10, there were 9772 registered brokers and in FY11 it was at 10,203. And as per data put out on SEBI’s site, at end of Nov’12, number of brokers had dropped to 9,955 and on an average, more than 50 brokers have dropped out in every single month of FY13. Corporate brokers have also come down 50% to 2439 at end of 2012 v/s 4877 at end of March 2012.
And the number of sub brokers has also come down sharply. At end of 2012, there were 71,754 sub brokers v/s 75,378 as at 31st March 2012. At end of FY11, there were 83,808 sub-brokers. And statistics shows that 802 sub-brokers have pulled out of the market every single month, till end of 2012.
Post 2008, many brokers were finding it difficult to even make ends meet. Various reasons - high overhead costs, increase in compliance and risk management, falling retail participation, below zero brokerage fees. So one hand their brokerages have come down drastically while overhead expenses have shot through the roof thus making the business unviable. High cost of rent, electricity and people cost has also soared.
Recently, SEBI asked fund houses to cap their trade execution charges to the extent of 12 bps or 0.12% for cash equity transactions and 5 bps or 0.05% for derivative trades. Prior to this,, the trade execution charges were 0.15 to 0.20. And with these new charges, which came into effect from November 19, institutional brokers say there 10-20% drop in the earnings.
SEBI has also stipulated that mutual funds are not allowed to route more than 5%of their trades through one broker and they used to employ around 20 brokerages for trade. And larger fund houses used 40-50 brokers and source their research and analysis these brokers. Post this hike in charges, number of brokers being employed by these funds has come down and this has forced some mid and small brokerage houses to shut shop and many large ones to close down their research outfits. Many are now offering it as a special package, at an additional cost to the clients.
Yes, the large brokers are diversifying too. After all there should always be a “Plan B” in life and in the markets, given the high level of uncertainty, surely it is essential. Angel Brokers' owner Dinesh Thakkar has started a fitness club, '48 fitness', and though broking will remain his main fray, he plans to build a chain of such clubs across India. Another broker, Ashok Damani has started a chain of hotels - Platinum Hospitality. He is also now a realty developer. Shripal Morakhia of brokerage house, SSKI has a chain of hotels, known Smaash, he also makes movies! Broker Jayesh Shah now runs a company of ready-mix concrete. The list is endless of many brokers making alternative plans to fall back upon.
These are the signs of changing times. Brokers will always remain, as long as stock markets remain though the way brokers now work and they will work in the future will change. Yes, their numbers might rise and fall with the market but they are not a species which is going to become extinct in a hurry.