The surge in the stock market has failed to stem the trend of small-sized brokers shutting operations.
Around 6,500 sub-brokers vanished between April and November 2014, despite the market rallying 28 per cent during this period.
In the parlance, a dealer executes or punches in orders, while sub-brokers are typically affiliated to a large broker and operate neighbourhood branches.
Experts said the advent of online and mobile technology, coupled with market volatility, are to be blamed for any entities exiting the broking business.
Technology has made transacting easier for clients through their mobiles or computers. Large brokerages with online presence have consolidated, at the expense of weaker players.
The number of sub-brokers has come down by nearly 13 per cent, from 51,885 in March 2014 to 45,351 at the end of November, shows data from the Securities and Exchange Board of India (Sebi).
The count is down 40 per cent from March 2012.
A small part of the decline in sub-broker registration could also be due to Authorised Persons (APs), an alternative registration framework introduced by Sebi, say those in the sector.
The compliance requirement for APs is less, as they have to register with the stock exchange instead of the regulator.
The exact count of these intermediaries could not be ascertained. Algorithmic and internet-based trading has also reduced the dependence on dealers for brokerages.
By sector estimates, dealers account for about a third of the total workforce in the brokerage sector.
This is down from the 50 per cent in 2008-09 and could decline further, officials said.
“The new investors who came into the market last year have done so largely through the online medium – through desktops, tablets and mobile phones. In fact, nearly 50 per cent of our trading volumes are now generated through online trades,” said Satish Menon, executive director, Geojit BNP Paribas Financial Services.
A substantial amount of active investors are day traders in the futures and options (F&O) segment, where the commissions earned by brokers are less compared to delivery-based trades in the cash segment.
Entities in the sector say traders are known to prefer going through the online and mobile platform, without going through dealers.
“The top 100 brokers accounted for about 80 per cent market share as at March 2014 as compared to 77 per cent as at March 2013…for the smaller brokers, unless there is a rapid increase in retail participation, they will continue to face significantly higher pressure, compared to their larger and more diversified peers,” ratings agency ICRA had said in a report last year. The number of sub-brokers saw a sharp rise during the peak of the previous bull run in 2007-2008.
The subsequent stock market crash and drop in trading by retail investors saw a lot of entities moving out. Client activity ratio, showing the number of active clients, has also dropped from a peak of 12 per cent in 2008 to just four per cent at present.
After the downturn in 2008-09, dealer networks started shrinking as investors moved out of the equity markets. As brokerages expanded their businesses to include portfolio management services, advisory and credit business, dealers were soon replaced by relationship managers (RMs), who doubled as dealers and financial advisors to clients.
“For certain brokerages, the RMs had become the centre point for all interactions with clients and were also responsible for getting new clients,” said Rakesh Goyal, senior vice-president, Bonanza Portfolio.
This continues till date, with many large brokerages preferring RMs capable of advising clients on all kinds of financial products and needs, rather than only executives punching in orders, analysts said