The Reserve Bank of India is expected to make a decision toward the end of the month on whether to allow derivatives brokers to charge for their services. In 1992 brokers in India were forbidden from charging commissions following a series of scandals in which brokers violated regulations and raised concerns of their manipulating the markets, saidB. Ratnam, chief executive officer at theFixed Income Money Market and Derivatives Association in Mumbai. Cash equities and foreign exchange brokers were exempted from this regulation. With derivatives markets in India heating up, players have been pushing for derivatives brokers to be exempted as well.
A broker in Mumbai said that officials at the RBI had informally indicated to his company that they would this month be given the go-ahead. Such a move would dramatically improve liquidity in the nascent interest-rate swap market, Ratnam said, who confirmed that a decision is due this month but declined to speculate which way it would go. Several brokers have set up shop in India over the last year, offering brokering services for free in a bid to gain market share, reasoning that when brokers are allowed to charge, a flood of new entrants will arrive, giving early movers an advantage. The brokers typically subsidize this service with other parts of their business, such as consulting. FIMMDA has been in discussions with the RBI over brokerage fees for a couple of months, he added.
A broker in Mumbai said that his company would not be able to continue its free service indefinitely though and that it had entered the market on the understanding that the RBI was actively considering allowing derivatives brokers to start charging. An official at emecklai in Mumbai said that it was hopeful the RBI would allow the company to charge, but declined further comment. Officials at the RBI did not return calls.