Navigating the Future: Examining the Role and Benefits of New Brokers

Earlier, The Securities Board of Nepal (SEBON) had released a notice on Ashwin 2, 2079 with a 30-day ultimatum for interested companies to submit their applications to acquire new brokerage licenses.

As a result, 45 companies had submitted applications for stock broker licenses, while one company had applied for a stock dealer license.

Following the review of the received applications that occurred in three different phases, as of today 43 of the 46 applicants in total have received preliminary brokerage license or Letter of Intent (LOI).

The regulations include a three-tier share broker system planned. There will be three different licenses offered: general securities dealer, full operating securities broker service, and limited working securities broker service.

In order to obtain a license under the limited broker category, the company has to have a paid-up capital of Rs. 20 crores. Similarly, to obtain a license for a full operating securities broker the company has to have a paid-up capital of Rs. 60 crores.

Meanwhile, the license for the stock dealer has been proposed with a capital of Rs 1.5 Arba.

Given the fact that 43 companies have received a letter of intent, the collective paid-up capital of the companies amounts to a massive Rs. 11.29 Arba. In times of a reeling economy, the administration of such a large capital in the market can help to resolve the ongoing liquidity crisis to some extent.

Similarly, according to Rule no 2 after the amendments in the Securities Dealers (Stock Broker, Securities Dealer, and Market Maker) Regulations, 2064 (2008), the Board has established the cost of the license for share brokers, which is broken down into three types based on level. For the broker license, the applicant must now pay a minimum fee of Rs 25 Lakhs to Rs 1 Crore. The charge for a securities dealer license will be the most expensive under the current proposal, costing Rs 1 crore, whereas for the limited broker service Rs 25 lakh and for the full operating securities broker service Rs 50 lakh. The said provision is an opportunity for the government to collect revenue upfront.

In addition, the brokerage houses will incur a cost of Rs. 1.5 Lakh as the yearly renewal fee from the limited broker service provider, Rs 3 lakh from the full operating securities broker, and Rs 5 lakh from the Stock Dealer companies. These regulations in place ensure constant annual revenue collection for the government in the wake of the government’s attempts to expand its revenue collection streams.

The operation of additional brokerage houses would also create employment opportunities. For instance, among the 43 recipients if each of the companies is to employ 15 employees for a single branch, that would lead to jobs for 645 individuals and the tentative calculation is exclusive of employee requirements if any of these companies’ desire additional branches in the immediate or distant future. Therefore, the operation of new brokerage houses would lead to job creation in significant numbers.

In the same manner, addition of brokers will not only put pressure on the existing brokers to improve and upgrade their services but would also make the sector competitive as new brokers will look to attract customers with promise of convenient, speedy services. This in turn, will be largely beneficial for the investors as they get accessibility to better services at potentially reduced, competent charges. The change was much required as in the past existing brokers have been alleged of providing ineffective services on several occasions from delays in payment after sale of security to unattended customer calls during peak trading hours.

Lastly, as new brokers will most definitely vie for new customers with a great chance of success at the same, it will eventually benefit the market by increasing the number of customers in the secondary as well as the primary market. An increase in number of investors subsequently implies a rise in the investment or market capitalization. Similarly, as the government already announced its policies and programs to make arrangements for Non-Residential Nepalese (NRNs) to invest in the capital market, the new brokers are at the edge of more potential customers than possible before.

Therefore, after the assessment, it would be fair to say that advent of new brokerage houses would really be bloom as it is beneficial to all concerned parties including the government, share market, old brokers, new brokers, the economy and above all the customers.

The table below includes the names of companies that have received Letter of Intent (LOI) and their corresponding paid-up capital: 

14 Additional Companies Receive LOIs; 43 Among 46 Applicants Receive Preliminary Stock Broker License

Quota System Abolished in Share Broker License, Any Company Above Rs 20 Crore Paid Up Capital Can Apply For Broker License

What Are The Requirements To Apply for Stock Broker and Stock Dealer License?