Chart of the day: Brokerages shut shop despite rise in F&O turnover

Riken Mehta

The number of equity brokers is on the decline, going by Sebi data till December 2011. This despite traded turnover on the bourses having nearly trebled over the last three-and-a-half years. Industry sources say more brokers would have shut shop during the first half of this calendar.

The reason for declining profitability of broking firms has to do with the shift of volumes from cash market to the futures and options (F&O) market where the broking fee is much lower. For instance, on a cash market turnover of Rs 10 lakh, the broker earns Rs 5000 as commission, whereas on the same turnover in the F&O market, the commission is just Rs 250. A sharp rise in the cost of funds too has hurt the bottomlines of brokerages, as they have to fund their clients’ positions till the cheques are encashed.

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