Direct market access for retail investors?

There was a lot of noise in the last two days that somehow the exchanges will directly deal with customers without stock brokers. Here is why it is maybe not possible:

@nithin

So how come SEBI is not aware of risk management then?

On the one hand SEBI can increase margins saying the risk is higher in markets and on the other it seems they are completely unaware of risk management when it comes to allowing DMA to retailers.

Does this even make sense?

1 Like

conflict of interest buddy, anything brokers put out regarding this has 0 credibility

SEBI hasn’t announced anything yet. It was a rumor that got picked by media. We will have to wait and see if SEBI puts anything out.

ROBOTS are coming

My view is that automation & IT is smashing every profession and business… if I can buy a TV directly from manufacturer online… why do I need a broker to buy stocks.

If SEBI is talking about block chain then it makes sense to allow retail investors direct trading access with stock exchanges…

Lessor supervisory cost for SEBI
Higher volume for exchanges. No brokerage for investors/traders
Higher profit for exchanges in terms of selling data feed to retail traders.

Of course … lot of job losses and business loss for brokers but then robots are coming for every job out there…

& make no mistake same technology helped online discount brokers finish off sub brokers … just because they did not make any economic sense

You forget about leverage ,exchanges are not going to provide it.

leverages are not provided by brokers… its as per SEBI guidelines and provided by exchanges…

Intraday … thats going to be history soon

1 Like

Hft and many prop desk traders uses this intraday leverage for huge quantity ,I don’t think it will be history so easily

@nithin without fire there is no smoke , today everything can control online , even exchange can come out an own broker membership also , because all episode and problems are created by brokers , like KARVY , BM wealth ETC , the big threat for retail traders is broker , because misuse of client money , misuse of client securities , so really the regulator SEBI doesn’t want to believe the broker… they can come out their own broker membership , they dont need to advertise also , in this online world its really easy for them , SEBI is really looking the retail money to be safe in the financial market … i am not pointing any good broker here ,’ when the pure water is mixed with drainage water no one cannot tell its pure water’
lets give your opinion

2 Likes

@rahul1777 Leverage are providing by exchange according by SEBI guidlines , not a broker

well, I don’t know whether Sebi will come with DMA model or not but if they come with it and retail client money is directly parked with the exchange, and we have to select broker only for the platform then I think zerodha will be in huge problem. :wink: :wink:

Exchange directly working with retailers means, their size has to increase substantially. Their risk carrying capacity, and the fixed cost will quadruple if not more. There are multiple layers of clearing agencies in the middle, who offer and take liquidity.

Whatever the decision, game will continue albeit with more stringent norms. The odds of DMA is 1 in 20 times, which is not much. Alternate universe in which Batman wears shiny red cape, this might be happening…

SEBI should provide DMA to HNI retail clients.

The reason I say this is, If a brokerage firm fails, all the small investors are being paid from the Investor Protection fund (IPF), whereas for a HNI client, it is limited to 25 Lacs (Correct me if I am wrong). So all HNI clients when shifted to a DMA, Deposits, collateral lie with the exchange. That means a peace of mind for HNI clients.

So every body benefits this model. A win win situation. @nithin your comments.

Do go through the post again. HNI customers bring in a lot more risk/customer than normal retail traders. And like I have mentioned in the post, brokers mitigate that risk today. I don’t think exchange can take that risk on their head directly. I had recently shared this on twitter.

@nithin majority of public only understands one thing about brokerage firms…that is they take a cut of your transaction…other than that almost everyone is unaware about various roles performed by a brokerage firm. For eg would EPI be possible without a brokerage firm? And would u mind enlisting some of the functions that brokerage performs that people are unaware about.

Brokerages not only take a cut, They also implement their own rules ( though some times required), FD as margin, MF units as margin, restricting us to a particular terminal, delay in payout of funds, 100% payin of funds much before executing a trade are some of them which immediately strike my mind. A lot more can be listed.

Providing intraday margins 2X to 30X is also a reason for risk and that is done by a broker. There are very less instances where the markets have gone below the margin collected. I feel exchanges are much better in mitigating the risks. Their Settlement Guarantee fund is much bigger than sum of the entire Indian broking industry. I feel brokers are just defending to save their butt! I support this move and am waiting!

All those posting in support of DMA, a few points to ponder for all of you.

If all Brokerage houses are disbanded & Exchange is the Sole participant with whom all of us interact, don’t you think we are placing all eggs in 1 basket? The competition among brokerage houses ensure we the retail trader have options & a say in quite many things.

What if any will be the incentive for the exchange to add new features in the Trading Terminal they provide? If you say we go with 3rd party Trading Terminal, then the cost incurred will be higher

What do you think will be the resolution time for issues raised if Exchange also has to provide all services of a Brokerage House? Also what kind of resolution do you expect if you raise a complaint against the Exchange, sent to the Exchange itself?

Agree many may have not good experience with the Brokers, but if all clients are centralized with the exchange, imagine the power asymmetry which it causes for us retail traders? Where we will have just about no say in anything.

In short if you make 1 institution ‘All-In-One’, then the risk it brings in is enormous. (Too Big to Fail… does that ring a bell???)

Yes. Your point is great. Best example is Telecom sector. After some more time, only two players in Indian telecom industry. How much price we have to pay for our mobile recharge, not imaginable.

You might be right… I am new so don’t have enough knowledge…but few things strike my mind as a beginner:-

  1. Account opening procedure gets eased up with help of a broker
  2. Platforms like this one here and others like varsity are likely not be provided for by the exchange, and they hold quite a good value for investor education.
  3. Margins are provided under sebi regulations, which will continue in the way sebi wants,with or without broker.
  4. General experience in dealing with monopolistic agencies is not pleasant. Open competition is healthy.
1 Like

First and foremost you are equating an Exchange with a Broker. That answers most of your questions.

Coming to monopoly, The monopoly of BSE was the major reason for success of NSE.

If you go through my first post, I suggested only HNI clients not the entire retail segment.