Sebi flags concern on brokers shutting shop..

This is an interesting piece of news. Given the noise on how Indian equity markets will reach new highs in future (the noise is not anything new BTW), one would imagine the equity players doing well. But one hardly sees this.

Look at most market players around – investment banks, mutual funds etc all seem to be bleeding and exiting. Most small players in these various sub-markets are shutting shop and in MF industry we have seen big MNC players exiting the space.

Broking industry is joining the exiting game as well:

In a meeting with representatives of stock brokers on Thursday, the Securities and Exchange Board of India (Sebi) has raised concern over loss-making brokers operating in the cash segment.

The regulator discussed the data which showed how a high compliance cost had forced 85 per cent of brokers having capital between Rs 1 crore and Rs 10 crore to shut shop. The number of brokers in the cash segment has halved in the past eight months — declining volumes in this segment and the high compliance costs have led to 3,187 brokers shutting shop, shows market data.

I think more than compliance costs, the nature of market is also changing.  Technology is playing a big role. A broker had huge advantages earlier but not anymore as information is available within just a click/swipe..

Another factor is the industrial organisation bit. Just like we see in banking, over a period of time there is just more concentration in other sub-financial sectors. Size and scale matters in all financial services and applies to broking as well. A sector which thrives so much on competition in other sectors is actually about concentration.

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