After retail investors, it’s the turn of sub-brokers to go out of the market. In the last six months while the equity market turnover has been hitting new highs, nearly a fifth of sub-brokers in the cash segment gave up their registrations as lower retail participation and higher cost of compliance and regulatory changes reduced their business to a trickle. The number of sub-brokers fell from 69,060 as at end-June to 57,387 as at end-September this year — a drop of nearly 11,673, or 17%, according to the Securities and Exchange Board of India (Sebi) bulletin released on Wednesday, This takes the total number of sub-brokerage closures to 12,855 in the first six months of this fiscal even as the number of broker registrations in cash segment, too, fell by 522 to 9,606 in the same period.Experts said with retail investors almost non-existent in the recent times, the share of high yield brokerage income from equity cash segment has fallen significantly, leading to sub-broker exits.Rakesh Goyal, senior VP at Bonanza Portfolio, said not just the broking industry, but the entire financial services domain – be it mutual funds or insurance companies — is feeling the pain.“Many people were attracted to this industry believing that Indian middle class has ample savings and earnings capacity to invest in financial products. But the fact is that middle class, which has invested in real estate, has neither the money nor risk appetite now,” he said.While they have hit their five-year-old just now, the equity markets have remained range-bound and volatile for the last five years, leading to structural shift towards derivatives segment or positional calls.Deven Choksey, MD at KR Choksey Securities, said the markets have become more of a trader’s market with many of the retail investors, too, shifting to derivatives trading.“The concept of buy and hold is fast disappearing and retail investors, too, are getting attracted to taking positional bets through options,” he said.The trading volumes in the cash segment have almost halved from their peak of around Rs 27,000-28,000 crore in December 2007 to around Rs 13,000-13,500 crore in recent months.Goyal feels the high cost of regulatory compliance and other operational costs too have taken a toll on smaller sub-brokers.“The cost of transactions and bringing clients have gone up, and with the Sebi tightening the overall compliance requirements for brokers, many of them don’t find the business lucrative enough now,” he said.Choksey said apart from dwindling cash volumes, the competition from bigger banks with wide reach too has been responsible for exit of sub-brokers from the business.“The sub-brokers are unable to meet the advisory requirements of clients, and the clients also have lesser compliance issues with bigger reputed banking channel than they have with sub-brokers,” he said.Going ahead, the recent Sebi changes which gives more power to investor in case of dispute with broker may lead to more exits, believe experts.Choksey feels that the impact of this recent “bizarre” rule may be felt with a lag effect leading to more exits.

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