SEBI’s client-broker relationship guidelines throw up operational and cost challenges for brokers; they are seeking relaxation in the rules
Market watchdog Securities and Exchange Board of India (SEBI), in its circular dated 3 December 2009, had laid out rules pertaining to the broker-client relationship in a bid to increase transparency.
Among the various rules were authorising running an account once in a year, increase in font size of all documents and settlement of funds once in a calendar quarter or month. Following apprehensions from the broker community, the regulator extended the deadline to 30 June 2010 from its earlier deadline of 31 March 2010. However there were no amendments to this circular.
While brokerage houses are gearing up to ensure that they comply with the circular, they are still facing operational glitches.
“The implementation faces practical and operational difficulties, for example, quarterly settlement of accounts for all clients on one single day is not possible as it may require a huge amount of working capital for rollover/margins/replenishment of exposures, etc. The broking industry is proposing its relaxation, to at least once a year instead of quarterly adherence. They are trying to impress upon the authorities to find a practical solution—implementing it in batches for a set of clients so that in a given period, all client accounts are settled as stipulated so as to remove the pressure of settling all accounts on a single day. The rotational settlement covering all clients will meet the desired objectives,” said a spokesperson from Anand Rathi.
“Most of the clients have given a mandate to square off the account in a quarter. We are planning to do it from 30th June. We have around one crore demat accounts in the country. If we are told to take new forms from them then there is a cost of Rs100 per form. It will be a very difficult task. There will be a burden of around Rs100 crore on the industry,” said a Mumbai-based broker.
“It is a yearly affair; hence a broker can send statements of balance of funds and securities to all his clients. Of course, it is a subjective matter in terms of cost escalation. Some brokers may charge a cost for the same under courier, despatch charges, etc,” said Chandrashekhar Layane, senior vice president, FairWealth Financial Services.
According to industry sources, some brokers are seeking a further extension and possible amendments to SEBI’s circular.
For renewing the accounts, the operational cost in terms of printing material, paper, and courier charges, etc, per account could go up to Rs25. Printing all documents in a font size of 11 is also likely to add to the costs. Besides, SEBI also has certain modifications to the ‘know your client’ (KYC) forms.
“A running account of a customer with a broking firm is similar in conformity with the established commercial practice for any financial relationship like a banking account, mutual fund account, a buyer and seller (trading) account and a supplier-customer account. An initial authority for setting up such an account with an authority to revoke with the customer should suffice. The new system of periodical squaring off and quarterly statements of accounts strengthens the system further. In view of this, yearly renewal is unwarranted,” adds the spokesperson from Anand Rathi.
The exchanges are trying to convince brokers to implement the circular by 30 June 2010.
Mumbai-based Godrej Consumer Products Ltd said it has entered an agreement to acquire a 100% stake in Laboratoria Cuenca, Consell SA, Issue Uruguay and Issue Brazil (collectively referred to as ‘Issue Group’). No price details were provided.
Godrej Consumer Products Ltd is a major player in the Indian FMCG market with leadership in the hair colour, household insecticides and fabric care categories. The Issue brand enjoys volume leadership in Argentina with a market share in excess of 20%. The business had revenues of over $33 million in 2009.
Godrej Consumer Products ended 2.62% down at Rs312.20 on the Bombay Stock Exchange, while the benchmark Sensex closed 0.15% up at 16,469.55 points.
The group is now approaching local real-estate agents to sell its properties at Lodha Aqua, its high-priced project in suburban Mumbai
The Lodha group, which was selling its ‘Lodha Aqua’ (near Dahisar, suburban Mumbai) property exclusively through invitation, has now climbed down and is seeking the help of local agents to sell the properties in its project. Around 150 real-estate agents between Malad and Bhayander (in suburban Mumbai) were invited for a get-together on Saturday (22nd May) at the project site. A company official has offered local real-estate agents a deal for selling its properties in the Aqua project.
The official also announced details of the project (current prices, size of the flat, etc). The developer is offering a commission of 2% per transaction to the local real-estate agents. Earlier, Lodha was confident that it would be able to sell off all its properties through its corporate sales team and with a handful of realty brokers. But that did not work out and now it is opening the gate for local real-estate agents.
“The developer invited local real-estate agents between Malad and Bhayander for a get-together on Saturday to create an awareness of the project and also offered us to a deal to sell the properties in Lodha Aqua more aggressively. Earlier very few brokers were allowed to sell the properties in this project but now it is accessible for most of the agents within this locality,” said Nilesh Pandey (name changed), a real-estate agent in Mira Road.
In December 2009, the developer jacked up the price for the project to Rs6,399 per sq ft. Currently the developer is quoting a price of Rs5,600 per sq ft, according to the real-estate agent who attended the party.
“Big developers also need the involvement of local real-estate agents to push sales. Local residents are more comfortable dealing with local brokers,” said Vinod Sampat, a Mumbai-based property lawyer.
Besides involving local players, Lodha has also reduced the price of a few properties in Lodha Aqua. This shows that developers have now started reducing prices of their properties. The Lodha Group launched ‘Lodha Aqua’ in 2007 and is still struggling to sell its properties in the project. At the time of the launch, the developer claimed that it had sold 300 units at Rs5,850 per sq ft (comprising two bedrooms, hall & kitchen (2BHK), with an area of 1,017 sq ft and 3BHK with an area of 1,395 sq ft).
Most developers in Mumbai and Delhi are facing problems in clearing their inventories as they have jacked up the prices of their properties. They are trying all they can to clear inventories. “Post the recession, the increase is volume that you had seen will subdue. In certain segments, prices have increased by 30%-40%. We are going to see lower volumes of transactions in the next six months compared to the last six months, if the prices do not come down,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.
Moneylife had earlier reported (http://www.moneylife.in/article/78/2292.html) on how inventories are piling up with developers in Mumbai and Delhi and they are unable to clear their stock. “As for the quarter ended March 2010, prices have gone up further by 15%-20% and we are estimating sales to be down further by 25%-30%. Property prices are (now) indicating the rise of another asset bubble,” said Pankaj Kapoor, founder, Liases Foras.