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ETMGS panel discussion: For broking industry to stay viable, value addition holds the key

Brokers are not getting money out of transaction business, says Ashishkumar Chauhan.

ETMarkets.com|
Updated: Nov 25, 2019, 12.36 PM IST
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Chauhan said that BSE entered into mutual fund distribution platform a few years ago, which now accounts for 40 per cent of new customers.
Technology is disruptive but it is also an enabler. For brokerages to sustain in the business, adapting to changing realities and focussing on adding value to investors hold the key. This was the summary of a panel discussion on stock broking industry at ETMarkets Global Summit.

"Brokering business are dying frankly. Brokers are not getting money out of transaction business," said Ashishkumar Chauhan, MD and Chairman of BSE.

How would you give value and get into higher margin business, he wondered.

For that you have to look out for newer revenue streams, he said. "Ten years ago, we used to fight in an old market, which may not be a 'market' at all in the future. Who would have thought of derivatives in 2000? But by 2007, it was clear that we have to look at derivatives seriously." Chauhan said.

Chauhan noted that BSE entered into mutual fund distribution platform a few years ago, which now accounts for 40 per cent of new industry customers.

The discount broking model took the broking industry by storm. But the trend was replicable and many new players as well as traditional players made sure that after the initial first-come gains, price advantage did not last for companies such as Zerodha.

Nikhil Kamath, co-founder and CIO at Zerodha said that the company's perspective has moved on from low-cost brokerage tag. "The price advantage no longer exists. What now matters is who executes better."

Brokerages now acknowledge that broking is a cyclical business, said R Venkatraman, MD at IIFL Securities. He highlighted that brokerages' operations are lean and that they are optimally staffed.

“What they need to look at is diversification of revenue stream. Commissions are coming down. Most brokerages used to make most of their earnings from cash or delivery segment of the market earlier. But now 96-97 per cent of the revenues are generated from the derivatives segment,” he said.

Venkatraman also noted that the cost of compliance for brokers was rising and that customers were getting more vigilant. "In 2001-2002 as well, there were debates on whether the broking industry would survive."

Uttam Bagri, Chairman at BSE Brokers’ Forum said that the regulator was not willing to give flexibility, which a broker needs to deal with heterogeneous environment. “The regulatory expectations should be tempered a bit,” he suggested.

Shiv Sehgal, President and Co-Head of Institutional Clients Group at Edelweiss Global Investment Advisors, said that while the technology was disruptive, it was also an enabler. "You have interfaces and you have life simpler. Besides, a stock broker does not just do trading, there is an execution part to it."

Sehgal was of the opinion that it will take some time before artificial intelligence (AI) trend picks up in India. At the same time he sees blockchain as the biggest disruption to the trading world.

Bagri said that whether stockbrokers survive or not was a question not only in India, but globally. "Do we add value? That's the question," he said.
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