The Securities and Exchange Board of India is planning to introduce a grading system for stock brokers and for this it has begun discussions with leading credit rating agencies.
Currently, there are 750 brokers registered with the Bombay Stock Exchange and around 910 with the National Stock Exchange.
The capital market watchdog had announced its decision last week to get public issues graded by rating agencies. Sources said it was also keen on bringing a grading system for stock market intermediaries.
Executives at Crisil, the country's leading rating agency, said, "Besides the basic idea of grading intermediaries, the initiative should also be looked at from the point of view of surveillance. Sebi will be able to prioritise in surveillance activities based on the grades assigned."
Sources in ICRA, another rating agency, said, "It is an extremely difficult product to design as it involves a host of subjective issues that need to be addressed. Talks are on (with Sebi) at a preliminary stage, but the contours of the product need to be clearly defined."
Grading can be used for surveillance in the same way in which the Reserve Bank of India uses the rating of non-banking finance companies to chalk out surveillance actions.
Market players feel that grading of brokers will spur growth of professionally-managed entities as higher grading will attract more business opportunities. They also feel that the grading of brokers will help bolster risk management systems and procedures as these are vital rating criteria.
Compliance standards are also expected to improve as a result of the proposed move.
A senior executive from a leading brokerage firm said, "It is a welcome move because ratings would differentiate among brokerage houses on the corporate governance norms followed by them."
