At Monday's meeting, Aieba member brokers contended that a cut in brokerage and its extent, or negotiability, cannot be finalised or seriously deliberated upon till there is an improvement in the forex market's daily turnover and the status of Reuters' `Dealing Spot-India 2000-02 CUG' trading interface -- on whether it is a broking platform or not -- is resolved.

A meeting on the same issue has reportedly been scheduled between Aieba and Fedai some time next week, but sources said that "in all likelihood, a cut in brokerage may not be arrived at until the last quarter this fiscal, and we hope that by then turnover improves".

In the run-up to Monday's Aieba meeting, expectations ran high that the body will vote in favour of a cut in brokerage ranging between 20 percent to 50 per cent, leading to a reduction in costs and transaction-pricing. More so as the meeting had been called at the initiative of the Foreign Exchange Dealers' Association of india (Fedai), which regulates the forex broking business.

Senior treasurers and bankers, while being sympathetic to the largely proprietary brokers' plea that Reuters' offering is a broking interface, and therefore, be subject to Fedai's guidelines on brokerage, were of the view that "the stalemate has to be resolved soon".

While a vast majority of trades are now put through on a bilateral basis between banks, brokered deals still find favour as they assure confidentiality and better pricing in some instances. This, in turn, has been used as an argument by brokers for ruling against a brokerage cut: Turnover has dropped to $1.2 billion and 90 per cent of the trades are bilateral, the percentage of which can be increased, and that brokers are at the end of the day dealmakers of the last resort.

However, banks and Reutersare now ranged against forex brokers. Lower transaction volumes (both merchant and inter-bank), a steady rupee and increasing pressure on spreads have forced bankers to call for a cut in brokerage.

The Fedai fixes brokerage and is well represented by bankers, but it has thus far refrained from taking a unilateral decision, and taken a "consensual approach" to avoid legal wrangles. The Bombay Exchange Brokers' Association (Beba) comprising the bigger players, has already solicited legal advice from Udwadia, Udeshi, Desai, Berjis & Chinoy on whether Reuters' offering is a broking one with the response being it is indeed so.

INSIGHT

Forex brokers seem to be faced with a peculiar situation of waiting for turnover to increase before agreeing to a cut in brokerage. Ideally, the reverse is true, where lower transaction costs tend to push up volumes. The situation today is that a bulk of forex deals are done without the aid of brokers and brokers will have to try for a larger share.