Over 3,000 sub-brokers yet to pay regulatory fees

The number of sub-brokers who have not paid regulatory fees has run into the thousands, according to data obtained by DNA from the Securities and Exchange Board of India (Sebi).

A rise in regulatory fees and procedural delays in termination of memberships are among the reasons attributed by industry insiders for the pile-up.

Sub-brokers act as agents of a main broker, netting clients and providing them access to the market. For becoming one, a person has to register with Sebi and pay a fixed amount periodically as fees.

As of mid-September 2010, there are 3,066 sub-brokers from whom Sebi is still looking to recover money. The average amount due is Rs10,000 each.

A chunk of this comprises sub-brokers who are said to have exited the business coinciding with an increase in the fee structure with effect from 2007.

Instead of paying a fee of RS1,000 a year, the sub-broker had been asked to pay Rs10,000 for a period of five years.

“A lot of sub-brokers felt that they did not do enough business to pay these kind of fees and decided to drop out,” said a person associated with an industry body.    

The process of termination of memberships has also not been easy. Sub-brokers who discontinue their business have to put out an advertisement in the newspapers, in addition to making the required applications to the exchange and the regulator.

Rather than incurring the expense, they just stop doing business.

“The process of cancellation is a drawn out one and could stretch out for months. It was not seen to be favourable for sub-brokers who wanted a quick exit,” said the head of one brokerage.
Brokers on their part are said to be pleading inability to locate missing sub-brokers and have apparently made requests that memberships be terminated.

But the regulator is not taking the stand lying down. “As and when brokers approach Sebi with any proposal, the issue of outstanding sub-broker fee, if any, has been taken up,” the stock market regulator said in a reply to DNA .

In a story on September 10, DNA had written of brokers having to wait for memberships in new segments over unpaid sub-broker dues.

“The details of the brokerwise sub-broker outstanding fees have been sent to the stock exchanges/brokers periodically. They have been advised to recover the dues from the sub-brokers and/or the affiliated brokers and remit to Sebi,” the stock markets regulator added.

Meanwhile, a new set of intermediaries in the form of the authorised persons is emerging as an alternative to sub-brokers.

Though the person would perform most of the functions of the sub-broker, they would be classified as an employee of the broker and will not have to register separately with Sebi.

Thus the sub-broker seems ready to disappear, though one can’t say the same about his dues.