A bull market of more than four years, which has seen 4 million demat accounts being added every month in FY25, has also witnessed around 40% decline in the number of brokers.
The numbers speak for themselves: The total number of brokers registered with the stock exchanges for the cash and derivatives segments has dropped to 5,091 as of November 30, from 8,298 in 2021.
“Due to increasing levels of regulatory compliance, need for constant innovation and investments in technology, many regional-level stock brokers are finding it beneficial to register as an authorised person for a large stock broker and serve its clients,” Sandeep Chordia, chief operating officer at Kotak Securities, said.
At the same time, the number of associated persons (APs), the formal term for sub-brokers, seems to be mushrooming, said industry players. The number of APs registered on both the exchanges is around over 200,000.
Over the past 18 months, Kotak Securities has onboarded nine mid-sized stock brokers (exchange members) as APs. The brokerage house anticipates this conversion to accelerate further.
A former mid-sized broker, who has transitioned into an AP for a leading domestic brokerage house, admitted that that it has become unfeasible to independently operate as a broker. “Becoming an AP allows us to retain our clients while earning commissions on brokerage revenues,” he said.
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Chordia termed the arrangement a win-win, adding that “clients continue to get services from the same person as before while getting access to superior technology platforms and products”.
However, the increasing number of APs has created a new problem for the industry as well as the markets regulator – there are more instances of APs engaging in unauthorised trades, promoting unregulated products and offering assured returns to lure clients.
Sebi sources said the regulator is working on a consultation paper to tighten regulations for APs by raising the entry barrier to a graduate from the 10th grade, and mandating market experience of one-three years. In the absence of a graduation degree, experience of three-five years may be required, said a source.
According to another source, a qualifying exam like NISM, rigorous background checks, cap on commissions and clear definitions of AP services could be introduced.
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