Changing Dynamics of Stock Broking Industry in India. What Lies Ahead?
“It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change.” - Charles Darwin
There was a time in the Indian stock market when you had to yell in a trading pit to get your order through. You would then have to wait for T+14 days for the order to be settled.
Times have changed, and so has the stock market with all its participants. In fact, the stockbroking industry in India is undergoing rapid transformation as we speak.
The Indian stock market has moved from a 14-day settlement cycle to a T+1 settlement, from an 'Outcry' system to transparent online price dissemination, and from trading through a dealer over a landline to trading from a smartphone.
What’s Happening Now?
Moore’s Law is in action - trading volumes on exchanges are soaring year on year with incredible computing power processing thousands of orders in a fraction of a second.
The exciting part? This is perhaps just the start of compounding participation and order processing power.
Trading volumes and number of contracts traded daily on Exchanges are nearly 100x more than they used to be a few years ago.
The last 3 years have seen an unprecedented jump in the investor base. Factors such as COVID-19, internet and mobile penetration, growing awareness about trading and investing in stock markets, and IPOs have contributed to this growth.
Around 4% of the population holds demat accounts based on unique PAN, however, the number is over 120 million otherwise. With increasing awareness, we believe the number can surpass 250 million by 2030.
Improving Regulations, Compliance, amp; Investor Protection
In the last 3 years, we have seen multiple regulations and policies being rolled out by the Market Regulator SEBI, and most of them have been implemented.
SEBI and exchanges are trying to keep pace with the changing business environment. A majority of recent regulations are aimed at ensuring the protection of retail investors, most of whom entered the markets for the first time during the COVID-19 pandemic, from fraudulent practices.
For Market Intermediaries like us, with stricter penalties including debarment of members for a few months, adherence to compliance has become a prerequisite to conducting business.
In years to come, we believe the stock broking industry will undergo a paradigm shift. That said, the shift has already begun in many aspects.
You could safely say that the stock broking industry has constantly reinvented itself, much like a timeless storyteller. But will it or even should it continue to align itself with changing times? Read on.
Future of Stock Broking in India
1. Product Over Pricing
The Broking Industry has moved beyond pricing, additional exposure limits, and tips.
Recommended by LinkedIn
In the days to come, the successful players will not be the ones who charge zero brokerage or figure out a way to provide additional limits to their users or provide intraday calls resulting in more turnover or trades.
Instead, successful companies will be the ones who create a moat or an edge.
The edge can be through faster execution capabilities through
Or a combination of some of these.
2. Compliance is Pivotal
Compliance or regulatory arbitrage is going to be a thing of the past. Compliance is going to become a function as crucial and important as Tech, Risk, or Sales and Marketing.
3. Quicker Onboarding
With the Account Aggregator framework going live soon, onboarding clients will be much easier than before. Single KYC across all financial products may lead to wider participation.
4. Easy Switching
Today, there is interoperability across exchanges and clearing corporations. Clients can buy shares in one exchange (NSE) and sell in another (BSE), and vice versa.
The settlement takes place seamlessly. In a similar manner, Clients will be able to choose us as their broker without going through the onboarding process again.
Clients can shift their accounts to us like they select a mobile operator today without changing their mobile numbers.
5. User-First Wins Long-Term
Companies that fail to keep pace with the expectations of their customers and regulations would be left with a choice of either shutting their business or merging with a larger entity.
The industry is already witnessing a churn out. Those willing to adapt to change need capital to build technology and infrastructure.
Industry status for Stockbroking will enable us to raise capital/debt at viable rates; a relook at it is essential now.
A vibrant, well-regulated, and strong Capital Market creates trust and confidence and results in the mobilization of capital for the Economic growth of a country.
We, as market intermediaries, being an essential link in the ecosystem, have an important role to play. We believe the industry is all set to grow manifold, what we need is to embrace change, as Charles Darwin says.