Retail Investors May Soon Be Able to Trade Directly With Stock Exchanges

The Indian securities market regulator is considering allowing retail investors to trade with the stock exchanges directly. Currently, they don’t have provisions to place a trade directly with the bourses. Instead, they can trade only through any of the authorised stockbrokers. 

If the Securities and Exchange Board of India (SEBI) allows direct trading with the exchanges, then businesses of the stockbrokers would be adversely impacted. This is because the retails investors are to subscribe under the services of any of the stockbrokers that are registered with the market watchdog. 

The stockbrokers will take a massive hit on their revenues if the market governor makes this revolutionary move as their significance would be entirely obliterated. There are several stock brokers in India, and now they are staring at massive erosion in their inflows and are hoping that the market regulator does not give the nod for direct trading. 

As per a report by the ICICI Securities, as much as 63% of the market share is held by the top ten brokers. If SEBI gives direct market access (DMA) for the retail investors, then the biggest beneficiaries would be the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). 

The Bombay Stock Exchange itself is a listed entity while the National Stock Exchange is taking its steps to go public. The share price of BSE rose nearly 10% when a report said that DMA might be provided. The stockbroking industry has thousands of individuals employed, and their lives would be in disarray if DMA is offered to the investors. 

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Now, if the retail investors are allowed to trade directly, then the stockbrokers would lose out on revenues in the form of commissions they get for every order placed by investors. The commission varies across brokers and securities being traded. 

The Indian stockbrokers are broadly classified as below:

1) Full-Service Brokers:

These brokers offer a wide range of services and products for investors. This includes trading securities, providing valuable advice, financial and tax planning, and so on. They charge a commission or fee for their services. Full-service brokers would have undergone meticulous training in their field and possess immense knowledge about the stock markets. 

Now, if the retail investors can trade directly with the stock exchanges, then investors may not opt to receive services such as obtaining advice on finance or tax planning by the brokers. For this, they may go to professional financial advisers and chartered accountants.  

2) Discount Brokers:

Most new investors prefer investing via a discount broker as their services come at much lower expenses. They provide much-need flexibility as investors can place trade requests online from wherever they are. However, these brokers do not offer a wide range of services like the full-service brokerage firms do. 

If SEBI allows investors to trade with exchanges directly, then the existence of stockbrokers would be made difficult as their businesses would be rattled. However, this move would bring about a revolution in the securities market as the way of trading would change completely. 

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in