Shake-out of OTCEI brokers likely

Interestingly, two top south-Indian brokerage houses, Coimbatore Capital Market Services and Geojit Securities have decided to slash the rates of brokerage for clients who opt for trading on the OTCEI system. "While Coimbatore Capital Market will not be charging any brokerage at all, Geojit has decided to charge half the brokerage which it recovers from clients at other exchanges," said a top OTCEI source.

The rationale is clear. The exchange has to first be resurrected and brokers have to find meaning to be in the exchange. This can only be done through enhancedtrading turnover in the short term before the concept of high trading interest in small and mid-cap companies can catch up in India.

OTCEI managing director, Joseph Bosco confirmed that several top brokers across regions and stock exchanges have already informed the exchange that they would be trading heavily at the bourse.

And even as Bosco rattles off names of top brokers, there is a silent change taking place among the ranks of the small and medium brokers at the bourse. About six dealer cards have already been flogged off in the recent past at a discount of about 10 per cent to the price at which they had been procured.

Several other brokers are waiting for the bourse to pick up before they can start selling off their cards. No fresh dealership is being allowed. The reasons for selling out are clear. Sebi has set a base minimum capital requirement of Rs 4 lakh. Most of the OTCEI brokers were adhering to a limit of Rs 25,000!

In a market as depressed as this and considering that the exchange hasbeen in a comatose condition for the past three years it is highly unlikely that the smaller brokers are going to come forward with further funds to be able to trade. At last count only about 10 brokers of the exchange were actively trading and the restructuring of the bourse is set to kick-off a major consolidation exercise.

Bosco is not too unhappy about the situation as he feels that the exchange needs well capitalised brokers who can do trades on a large scale. There is gain for members of both NSE and BSE to reactivate their OTCEI trading terminals. OTCEI will have its trading cycle from Friday to Thursday.

"Friday being the last day of settlement on BSE, the BSE brokers can easily shift their position to OTCEI. This would also be a good counter to badla as it will allow them to retain their position without having to pay steep badla charges," said Bosco.

Trading on the OTCEI would be cheaper than that on NSE by almost 25 per cent and considering that most of the top securities would be listed onthe OTCEUI as well, the exchange is banking on big business coming in from top arbitragers.

OTCEI plans to kick off operations without having a new index or restructuring its old index. "There are already a number of benchmark indices present in the country. We would restructure our existing index later," said Bosco.

"As an incentive to participating brokers who had initially paid the technology fees we are going to give a complete waiver on transaction costs to the extent of the technology fees paid to the OTCEI," said Bosco."We would of course look at the small and mid-cap scrips once the exchange starts throbbing with life again, as that is the mandate for OTCEI," said Bosco.

SE chiefs seek definition of "common member"

MUMBAI: Even as the market regulator seeks to ensure greater co-operation between exchanges on sharing information about common members, exchange chiefs have asked the regulator to first define what constitutes a "common member".

Most of the brokers who have multiplememberships have acquired a membership at a bourse in the form of a corporate entity. Interestingly, however, the stake holding of a broker in each of these corporate entities is starkly different. So, while a broker may be a 70 per cent stake holder in a National Stock Exchange (NSE) brokerage he may be holding a mere 15 per cent stake in a corporate entity floated for membership at the Bombay Stock Exchange (BSE).

"Is this member going to be treated as a common member? While logically he is but technically he is not. Before we go into launching a co-ordinated approach towards common members the basic issue of what is a common member needs to be tackled," members of the inter-exchange co-ordination gorup which met on Thursday opined.

"There are several brokerage houses owned by the same family but the holdings of a particular person vary from one outfit to another. Therefore technically there are very few common members but actually there are a large number of brokerage outfits at various stock exchangeswith common linkages. But how does one go about seeking action against them as a member at NSE may claim not to be a member at BSE simply because he is not the majority stakeholder in the BSE card," a source present at the meeting told The Indian Express.