InvestorQ : Is it true that brokers affiliated to banks will gain from ASBA in secondary markets. What are the other problems you foresee?
Mahima Roy made post

Is it true that brokers affiliated to banks will gain from ASBA in secondary markets. What are the other problems you foresee?

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Crowny Pinto answered.
3 months ago
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One of the key objections to this ASBA for secondary markets is that the bank backed brokers ICICI Direct, HDFC Securities, Axis Securities and Kotak Securities will stand to gain. For bank-backed brokers, the float anyways does not move from the bank account and there is only a block on the amount. However, for non-bank brokers, funds have to be moved from the bank to fund the trading account via NEFT, RTGS or UPI. This pre-funding gives brokers a float, which these pure brokers will lose out to the bank-backed brokers.

However, the bigger concern could be the security issues in broker linkage. Now, since pre-funding of the trading account is being barred, the brokers will have to link up to all the banks. That way, for each client the requisite amounts can be blocked upto the required limit. However, that would entail, continuous interface between the bank and the broker and the bank may averse to it due to security issues of external link-ups. This may once again gravitate the broking clients towards bank-backed brokers in India.

However, the real challenge in this ASBA system will be in the F&O system, even as cash market should be relatively simpler. Margining in intraday is also quite confusing and that can go against ASBA. Margins in F&O would entail continuous debits as well as MTM pay-ins at the end of each day. There are further complications like the additional margins and then the enhanced delivery margins payable in last week of F&O expiry. Banks and brokers may not be able to handle so much of complexity with the existing system.

There is a larger issue here. In the last 20 years, a lot of broking and demat accounts actually became co-terminus. Demat accounts gravitated towards brokers for simplicity of stock movement in and out of demat. Now the new system will gravitate clients towards bank backed brokers, which may actually be unfair to the full-fledged brokers. Also, it is not clear if there is value in such a move, because the largest brokers in India today in terms of demat accounts are the non-bank brokers. IT may be a good idea, but may add little value.

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