Capital adequacy of all securities market intermediaries is to be gradually raised to the norms prescribed by the International Organization of Securities Commissions (IOSCO), of which SEBI is a member. A beginning was made by allowing corporate membership in stock exchanges. Corporatisation and limited liability have acted as an incentive for stock brokers to retain capital in their business. Corporate brokers can now have multiple memberships of stock exchanges subject to their separately fulfilling the capital adequacy norm of each exchange. Non-citizens can now be on the board of Directors of corporate broking firms. With these relaxations, several foreign securities firms have invested in domestic corporate broking forms. The number of corporate brokers has increased from 143 in March 1995 to 616 in December 1995.
Capital is only one of the methods for protecting market intermediaries (and consequently investors) from default and other risks. Thus, by 30 June 1996, the stock exchanges are to ensure that all member brokers are insured. This will enable them to better protect themselves against risk, thus protecting them from erosion of capital.
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