Mutual fund houses trim broker panel to cut costs

Ashish Rukhaiyar
Mumbai, 15 September 2011

The prevailing pessimism in the equity arena has compelled even the biggest capital market participants to rework strategies. With volumes down to a trickle compared to earlier months, revenue has taken a hit and every conceivable way to cut costs is being implemented across the board.

Mutual fund houses, which have been battling distribution-related issues for some time now, have come up with a new method to reduce overhead costs. Some of the top fund houses have started cutting the number of brokers through which they place trades in the stock market. Institutional dealers say some are even hinting at a 50 per cent cut.

Market buzz is that one of top five fund houses, with around 100 brokers on its panel, is looking to bring it down to 60 in the first phase and to 40, finally. Another is looking at trimming it to 25 from the existing 40.
Financial institutions, including mutual funds, execute their buy and sell orders through a number of ‘empanelled’ brokers, who, at times, also offer discounted brokerage rates, depending on the quantum of trade routed through them. Top fund houses are known to have 80-100 brokers on their panel.

“Market conditions are such that fund houses do not see any reason in continuing with a large panel of brokers,” says an institutional dealer with a domestic brokerage. “The bigger fund houses are concentrating on the top 20-30 brokers on their panel and routing most of the trading through them. The smaller ones on the panel have been left out,” he adds.

The move would come as a body blow to many institutional brokerages that have been reeling under heavy losses due to the fall in equity market turnover. Many are heavily dependant on a few institutional clients, which account for the bulk of their business volume. The recent past saw entities like Tower Capital and Alchemy Capital close their institutional business.