NSE has professionalized the broking industry by bringing in the concept of deposit based membership. This has opened up opportunities for a large number of professionals, who entered the broking industry for the first time.
Over the years, these professionals have thrived and have helped the broking industry to achieve internationally benchmarked service and compliance standards.
In any market ecosystem, multiple types of market intermediaries co-exist. These intermediaries could have varied structures, diverse objectives and serve different classes of investors. For example, some intermediaries may focus on servicing retail clients spread across the geography, while others could focus on providing services to institutional clientele. Some of them may choose to service niche client segment while still others may not take on clientele business altogether.
The systemic challenges posed by each of these categories of intermediaries would vary. For example, a retail brokerage servicing a large number of clients could be required to establish and manage elaborate systems and processes to handle client funds / securities ,so as to protect investors’ interests ,whereas the same may not be the case with a brokerage firm trading essentially on its own account. The brokerage handling customer funds therefore has to be required to place larger capital and have higher networth, while a firm trading with its own money, could be allowed to enter with a lower capital requirement. This differentiation is critical to ensure that only well capitalized entities are allowed to handle investor funds and those who are not sufficiently capitalized should not have access to investor funds. This is essential to protect investors’ interests.
In the current scenario all market intermediaries, irrespective of whether they handle customer funds or not, are subjected to the same base capital and networth requirements. However, it is felt that firms who do not handle customer funds may be allowed access with lower capital and networth. These firms can bring in innovative trading ideas and strategies, that could add to the liquidity of the trading platform. Such additional liquidity and resulting market depth would benefit all market participants including retail investors. Since they do not handle any outside investor funds, investor interests would not be compromised.
To address the needs of this entrepreneurial class, the Exchange has decided to innovate membership requirements, particularly since they do not handle client accounts, funds and securities. This new category of membership is designed to provide quick, easy and cost efficient access to the trading platform to firms that do not handle client accounts.
These firms can acquire Capital Market Segment membership with a deposit of Rs. 20 lakhs and F&O segment membership with a deposit of Rs.25 lakhs. Members can choose any one or both the segments, as against the existing offer of combined membership of both the segments, for a deposit of Rs. 1.10 crores. Networth requirements have also been reduced by 50% to Rs.50 lakhs for this category.
Existing members of the Exchange will be allowed to convert their current membership to the new ‘Alpha’ category. Resulting surplus deposits with the Exchange will be utilized to pay transaction and infrastructure charges, over a period of three years. Essentially, such members would not have any cash outflow for paying transaction and other charges during the period of utilization of the surplus deposit.