It is a measure of how bad things are on Dalal Street – stockbrokers catering to the institutional segment have salaries by 20 per cent for the second time in the last six months.

“This is our second salary cut for 2011 as revenues are down and there is no other business to turn to,” confirmed an employee at a brokerage which is into institutional business and proprietary trading.

There is a danger of institutional business being shut down at several brokerages if this trend continues for another couple of quarters, leaving scores jobless.

In general, brokerages work on a basic revenue model in which a dealer earns Re 1 as salary only if he generates a minimum of Rs 4-5 as brokerage.

Trading volumes have dwindled since August as FIIs have been net sellers of equity. Domestic institutional investors do not have the wherewithal to act as a counterbalance. (There are restrictions on mutual funds and insurers on trading in derivatives.)

All this means lower income for institutional brokers.

“It's almost inevitable as costs have increased and revenue has vanished. Large FIIs are slowly shifting to direct market access (DMA) and this means brokerage would come down from 30 basis points to five basis points for delivery based transactions,” said Mr Anand Tandon Group CEO, JRG Securities.

The last bull run in the equity markets saw the number of institutional brokers rising two and a half times from around 30 in 2003 to approximately 75 where it remains. This was mainly due to a spurt in institutional business volumes led by hedge funds and other large FIIs.

With FII proprietary books and hedge funds vanishing, brokers are now left with long-term investors who do not generate trading volumes.

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