Brokers can now set up arms, invest in new business
UMBAI: The govt on Monday amended the Securities Contracts (Regulation) Rule, which will now allow brokers to use their own funds to invest in businesses outside their own area.
However, they will not be allowed to use clients' funds to invest in those businesses. They will also not be allowed to borrow funds to invest in other businesses. Brokers said they will now wait for Sebi's rules on the same.
Till now, brokers were not allowed to float subsidiaries. The changed rules will allow that, top officials at broking houses said. "Given the growth in the scale and interconnectedness of the financial sector and the evolution of the nature of business of brokers with time, the DEA (Dept of Economic Affairs) felt it necessary to review the appropriateness of safeguards embedded in the rules so that the intent of the rules is served without constraining activities of the stakeholders," the govt said through a release on Monday.
Broking house officials feel this amendment to SCRR is an important shift in regulatory approach. Till now, stock brokers were not allowed to make investments in any business other than securities and commodity derivatives, said leading broker Motilal Oswal. "This amendment would now allow stock brokers to make investments in any type of business, provided it is not out of client funds or client securities and also it should not create financial liability on the broker.
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This change also opens avenues for brokers to make strategic investments. "Stockbrokers have always been allowed to use their own funds for day-to-day operations within the securities and commodities business. This change potentially allows for strategic investments outside these core areas, offering greater capital flexibility," said Pranav Haridasan, MD and CEO, Axis Securities.
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