MUMBAI (Commodity Online): Reacting to the latest guideline issued by the commodities markets regulator, Forward Markets Commission (FMC) seeking a ban on sub-broker system in India, the broker community from across the country have expressed apprehensions about its viability and impact on trading volumes.

In a directive issued by the FMC last evening, the market regulator had asked commodity bourses to discontinue with the sub-broker system, and allow their members to service their clients only through 'authorized persons' appointed by the exchanges.

However, the traders do not seem to be comfortable with the FMC move. A sub-broker from Ahmedabad informed that this move will not only hamper the volumes of the exchange but also fail to bring more players in the commodities trading.

“I feel that the move will adversely affect daily volumes generated by the sub-brokers, will would naturally be reflected on the exchange’s volumes as well. We have a daily volume of Rs.15 crore. Post imposition of this ban, we will have a net loss of this amount in our daily volumes,” said Rajiv Parmar, Branch head of a sub-broker in Ahmedabad.

Sub-brokers form the chain of getting deeper into retail servicing. “By curtailing sub-brokership, FMC is actually stopping retail investors from getting into commodity market,” said a Rajkot based broking house employee.

In capital markets, he continued, this system has worked very well. The leverage and exposure given to sub-brokers depend on the trust that the broker has with his next line of marketing.

Cultural differences also makes a lot of difference to the way business is done. For instance Franchisee model works well in the south but not in the northern India. JRG Securities, a Kerala based broking firm, tried the same franchisee model they used successfully in the south, in some northern states and failed miserably.

Broking firms in different parts of the country give different margins to different clients depending on the proximity and trust they have. In some cities like Rajkot, the exposure is almost 100 times your margin money. This means if you have a lakh as margin money, you can trade upto a crore for intraday. This is quite the opposite to southern brokers who do not budge beyond ten times the margin money.

It seems the FMC is putting an end to these type of abnormalities by asking exchanges to stop sub-brokership.

However, FMC top Brass remained untraced to throw light on the concerns raised by the trader community. Very few broking firms are aware what the FMC means by saying 'authorized persons' in this parlance.

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