http://wap.business-standard.com/article/markets/sebi-flags-concern-on-brokers-shutting-shop-116042101014_1.html

The above news from today’s Business Standard is not at all surprising. Our regulators have kept very poor entry barriers to financial services. Any one with a suitcase seems to be able to start whatever business.

I do agree that stock broking is something where capital needs are minimal, but once the compliance costs and technology upgrades keep coming in, the resource crunch starts to bite.

The regulators have to now look at the necessity of having to use a broker to execute a trade on the exchange. With electronic trading, electronic funds transfers and demat/depositories in place, do we really need a broker?

It is very exasperating that whilst some brokers offer ‘direct’ trading on the internet, the brokerage charges for that are higher than that for the telephone order system based trades. This is ridiculous.

In the debt market, the RBI platform has eliminated the brokers. SEBI can make a beginning by providing a platform for institutional trades as well as delivery based trading on the net, by the participants directly. I do not see any risks in this at all.

As it is, the brokers only push the clients to keep trading. If that menace can be stopped, even the retail investors would be safe. There are many advantages of letting people trade without having to go through a broker.

The brokers will say they are providing ‘liquidity’. They can still do it . Nothing is being stopped. Those who want brokers can use them. Those who can trade directly should be allowed to.

Will this happen? Or, are the brokers too powerful ?

 

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2 thoughts on “Stock Brokers- Do we need them?

  1. Principles of Economics shall prevail. Regulators tend to ignore the power of incentives. & they shall learn the hard way.

    Technology may not be able to destroy all sales jobs. Any seller who offers value must be compensated appropriately. Adequate compensation cannot be denied to the seller by threatening him with technological advances.

    Quoting below from Chapter no. 11 titled ‘If you build it, will they come?’ in the book ‘Zero to One’ by Peter Thiel :
    “Superior sales & distribution by itself can create a monopoly, even with no product differentiation. The converse is not true. No matter how strong your product – even if it easily fits into already established habits & anybody who tries it likes it immediately – you must still support it with a strong distribution plan.”

    Like

  2. Investor (Buyer) cant be asked to compulsorily avail a service which he does not want. Let the market forces decide. Survival of the fittest.

    Like

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