brokerages: Investors shifting to larger brokers as smaller players face challenges

Sebi’s stringent norms on client funding and defaults by several small brokers have prompted market participants to shift their accounts to larger stock brokers. Top 10 brokers contributed 37 per cent to stock market volume in November compared to 22 per cent in 2014, according to a study by ICICI Direct. In terms of the number of active clients, top 10 brokers had 63 per cent to the industry. Online broker Zerodha has the highest number of active clients with a 12.3 per cent market share, followed by ICICI Securities at 10.3 per cent, HDFC Securities at 7.1 per cent and Sharekhan at 5.4 per cent. In June 2019, Sebi tightened rules for usage of clients’ funds by brokers.

As per the new rules, brokers need to transfer securities to their client accounts within one day of receiving payment and not put to any other use. In case, where the client defaults on payment, brokers have been asked to hold the securities up to five days post which the broker can liquidate the securities in the market and recover their dues. “Going ahead, market participants expect smaller brokers to become sub-broker of larger franchise leading to consolidation in the industry led by increased competitive intensity”, said the ICICI Direct report.