MUMBAI, March 15: Four-years after the initial euphoria, the screen-based debt trading initiated by the National Stock Exchange is yet to make a beginning.The NSE with its measly daily average turnover of about Rs 200 crore is far away from the much publicised Rs 1,500-crore turnover targeted when it came into existence in 1994.
Of the 100 debt market brokers registered with the NSE, 50 brokers are dormant and of the balance 50, about 10-15 can be defined `` active,'' a dealer at a brokerage said.
Many dealers are on the lookout for greener pastures but placement agencies are not too optimistic of finding them suitable jobs, he said.``Till then all you can do is hang on to the present job,'' he added.
Brokers who invested Rs 1 crore for a NSE debt card are now regretting and say volumes are not enough to take care of even their overheads. Most brokers said they would have made more money had they invested their money in bank deposits instead of a card.
This way they claimed, they could have atleast Rs 12 lakh net annually.In fact debt brokerages are not able to sustain the recurring transactions costs and many are on the way out, dealers at various brokerages said.
Recently Ashok Leyland Investments Services shut down its debt business division. Another two firms, Matmin Securities and Asia Corp Securities also wound up their debt division.
According to managing director of NSE, RH Patil, the list of woes is endless, banks, for one are still executing negotiated deals on the screen and unlike the equity segment of the NSE where deals are actually struck on screen through bidding.
The equity segment at the NSE is apparently doing well in terms of volumes, despite the transaction costs being the same as in debt.``This is because the price-fluctuations in equities take care of profits whereas in debt, the fluctuation isn't much and hence profitability is affected,'' Patil said.
This is a major setback to a vibrant market as there are no trade-based deals and only negotiated deals take placeon screen, Patil added.Secondly, there has been no attempt to improve the investor-base in government bonds and woo small investors, such as provident funds and individual investors.
These investors at present route their deals through private and foreign-owned banks, because they do not have a direct access to the Reserve Bank of India and banks charge them as high as Rs 1,000 per transaction.According to Patil, the market can deepen only if the wholesale interest is backed by a steady and wide retail order flow, and this could be a reality if the number of money market mutual funds increases, Patil said. ``The reason being the 30-day lock-in period for any investor investing in such funds,'' Patil feels.
The reintroduction of repurchase agreements in government bonds (repos) is another major factor for the poor debt market volumes. The RBI has restricted repo deals to only a few select government bonds and has not lifted the ban on repo deals introduced after the Rs 5,000-crore securities scandal in1991. The ban has made government bonds illiquid today, Patil claims.
Stamp duty continues to be a major hurdle and eats into profits of debt brokerages. While the NSE allows a brokerage fee of up to 5 per cent on the amount transacted, most brokers charge as low as 0.5 per cent in order to survive in a market dominated by poor volumes.
On a transaction of government bonds with a face value of Rs 5 crore, for example, a dealer has to pay Rs 250 as transaction fee to the exchange of the 0.5-per cent brokerage charged to the client.
Another Rs 1,000 goes towards stamp duty and the Securities Exchange Board of India also has its registrations fee based on the turnover- which is Rs 100 per Rs one crore of business turnover. This means the broker is left with a marginal amount as his fee after discounting the additional costs incurred such as operational and overheads costs.
``Not many brokerages are making profits today. The only factor for a few brokerages surviving could be efficiency of manpower,'' achief dealer at a brokerage said. Efficiency means generating more volumes from the same operational costs.
Another major problem that faces the secondary government debt market trading is the settlement of trades.
This is because there is no common agency for settling such trades, ``especially the securities held in physical form,'' Patil said.
This has led to trades being settled directly between participants as the facility of RBI's delivery versus payments becomes difficult, he said. ``SGL accounts are spread city-wise which means the buyer and the seller must be from the same city,'' he added.
Patil is of the view that if the government debt market has to deepen, then debt securities must also be taken up for dematerialisation through depository. Besides, the government should also rationalise the stamp duty to improve trading.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
