Many of our regulators – IRDA, TRAI and now SEBI may all be having good intentions, but the way it is being expressed is rather amusing. Now SEBI is saying that an Asset Management Company should have a net-worth of Rs. 50 crores. This means pushing the small funds out of the market. One has to understand and accept that an architect, doctor, CA, lawyer, broker, fund management are all PROFESSIONS. A professional cannot be judged on his net-worth alone. Increasing the net-worth requirement from Rs. 10 crores to Rs. 50 crores is not a big deal, but will push more players to get out of the business, soon rather than later. Many stock broking companies have their A M C licenses and may not be able to justify this amount. The limits were fixed long back and a change was required any way. The asset management charges too should have been brought down.
Of course it is necessary that there be a decent net-worth for our brokers, registrar, transfer agents, etc. but by pushing the small guys out we will be increasing the total cost in the capital market. If there is a small registrar, he will surely work on lower overheads – but when he becomes a part of a big organisation, his overheads go up. All this will increase the cost to the ultimate shareholder / unit holder. If it is a company the cost will be borne indirectly, if it is a mutual fund the cost will be passed on to the unit holder – but without asking him.
Similarly the net-worth for the share broker is also being increased. This will be interesting. The really small broker will be soon eliminated but there will be many big brokers. The beneficiaries are the entrenched brokers – including the dumb ones who have a lot of money, but do not know the business.
Somewhere in an attempt to show that SEBI is becoming investor friendly, small brokers, small amcs, ….etc. will be crushed. This is all right and is in keeping with the international trends. In 1999 when a bunch of friends gave up our NSE membership, I remember telling them if Morgan Stanley has to set up 8000 offices in India, it will have to eat / kill 8000 brokers like us. Of course this observation was from seeing what was happening to the jobbers, sub-brokers, small banks, etc.
The beneficiaries of all these changes will be the big well organised brokers like Icici Direct, Kotak, Hdfc securities, Indiainfoline, etc. there is not too much you can do about this. If you are a small broker, small asset management company, start packing your bags.