As part of its attempts to address the concentration risk on account of the market share of the largest broking firms, the Securities and Exchange Board of India (Sebi) has introduced a new category of Qualified Stock Brokers or QSBs who will be subjected to higher compliance requirements.
The decision by the capital markets regulator could see leading brokerages like Zerodha, Groww, Angel One, RKSV Securities, ICICI Securities, 5Paisa, HDFC Securities, Kotak Securities, Motilal Oswal Financial Services and IIFL Securities among others coming under the new category.
These are the top 10 broking houses in terms of the number of active clients, as per data from the National Stock Exchange for the month of November.
“In order to address the concentration risk, which exists in our markets today… the top 10-12 brokers will account for very large percentage of the market volumes. So, in order to mitigate the concentration risk, what is proposed is that on the basis of some very transparent criteria, certain brokers will be identified or designated as Qualified Stock Brokers,” said Sebi chairperson Madhabi Puri Buch on Tuesday while addressing the media after a board meeting of the watchdog.
"There will be an enhanced requirement on them in terms of risk management for all types of risks, market risks, IT risks, cyber risks etc. Much higher standards will be expected of them and there will be higher obligation on the MIIs (market infrastructure intermediaries) and Sebi in terms of monitoring them as well,” she added.
The enhanced obligation on the part of MIIs and Sebi would be in terms of inspections, frequency of inspections and regularity of review among other things.
This assumes significance as there are more than 1,300 registered stock brokers in the country. The bulk of the trading turnover is cornered by the top 50-100 brokerages.
As per data from Sebi, more than 80 per cent of the trading turnover on BSE in the month of November was from the top 25 brokerages. For NSE, the share was pegged at a little over 72 per cent.
If one takes into account the top 100 brokerages, then nearly 90 per cent of the turnover on BSE and NSE is accounted by these broking entities.
“Certain stock brokers in the market handle a very large number of clients, very large amount of client funds and very large trading volumes. Possible failure of such brokers has the potential to cause widespread impact on investors and reputational damage to the Indian securities market,” stated a statement by Sebi.
“To mitigate this risk, the Board approved amendments to the SEBI (Stock Brokers) Regulations, 1992 to designate such stock brokers, based on identified parameters, as Qualified Stock Brokers (QSBs). QSBs would need to comply with enhanced risk management practices/requirements. There would also be enhanced monitoring of such QSBs by SEBI/Market Infrastructure Institutions (MIIs),” it further stated, while highlighting the fact that a detailed framework on QSBs will be issued separately by way of a circular.
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