India’s largest discount broker, Zerodha, announced a potential change to its pricing structure. This comes after the market regulator, SEBI, introduced new rules. These new rules require brokers to charge standard fees regardless of trading volume.
Previously, exchanges offered brokers lower fees for higher trade volumes. In turn, brokers could provide clients with commission-free trades. SEBI’s new regulation limits trading in certain areas, like derivatives. To comply with the new rules, Zerodha may have to ditch its zero-commission model and increase fees for derivative trades.
The new fee structure, which kicks in October, significantly impacts brokers, traders and investors, Nithin Kamath, CEO and co-founder of Zerodha, said on social media platform X.
“With the new circular, we will, in all likelihood, have to let go of the zero brokerage structure and/or increase brokerage for F&O trades,” he said, referring to futures and options, derivative products in the stock market.
“Brokers across the industry will also have to tweak their pricing.”
The new fee structure announced by SEBI sent shockwaves through the stock market, particularly impacting brokerage firms. Shares of several listed brokerages, including Angel One, SMC Global Securities, Motilal Oswal, Geojit Financial and Dolat Algotech, tumbled between 3% and 8% on Tuesday.
This comes after a year of significant growth for these brokerage firms, with some stocks rising between 50% and 124%. The bullish trend coincided with a surge in trading activity and all-time high indexes. Interestingly, not all brokerages felt the immediate heat. 5Paisa Capital’s shares remained stable, and exchange operator BSE saw a moderate drop of 3.5%.
The exchange transaction charge, which constitutes 15%-30% of large brokers’ revenues and more than 50% of discount brokers’, is crucial for sustainability, said Tejas Khoday, founder of discount broking firm FYERS.
“A 100% pass-through of exchange transaction charges threatens to destabilise the discount brokerage business model,” Khoday said.
Zerodha’s CEO, Kamath, predicted a potential revenue hit of 10% for his company while estimating the industry could face a broader range of 10% to 50% impact.
This news comes after SEBI raised concerns about the increasing popularity of derivative trading and hinted at taking measures to curb this trend.
