Bullish market fails to revive brokers’ fortunes

In financial year 2015-16 till date, 2,961 stock brokers have shut their operation taking the total number of such closed units to 6,225 during the last two financial years.

While the closure of few regional stocks exchanges has been cited as one of the reasons for this, experts pointed out that even a large number of cash market brokers registered with the national exchanges have surrendered their membership with many of them opting to become the franchisee of larger players.

“The business is shifting from smaller players to bigger firms. Many of those who have surrendered their membership have turned to the franchisee model. At least 25 to 50 such brokers have become our franchisee in the last two years, he added,” said Dinesh Thakkar, chairman and managing director of Angel Broking.

He explained that the cost of investment in new technologies has gone up significantly over the last few years. The business is moving away from offline platforms as increasing number of investors is now preferring to trade online using mobile and other devices. “The minimum investment required to create an online platform, link it with the company’s backend operations and strengthen the customer interface among others comes to around Rs 2 crore to Rs 2.5 crore,” he added.

Rakesh Somani, past president, Association of National Exchange Members of India (ANMI) and director, Eureka Stock and Share Broking, said that the cost of compliance itself has almost doubled in the last 3-4 years. “The software to comply with just the PMLA guidelines cost around Rs 5 lakh. Then the broking firm also has to constantly invest in the technology upgradation. For us, the cost associated with technology accounts for about 30-35 per cent of our overall cost. So it doesn’t make sense for a smaller player to remain in business unless and until the volume grows,” he said.