Sebi Issues Uniform Charge Circular To MIIs: Will Zero Brokerage For Retail Investors Continue?

After Sebi's diktat of uniform charges for all brokers, Zerodha hinted that it may end the zero brokerage system or increase brokerage for futures and options
Sebi Issues Uniform Charge Circular To MIIs
Sebi Issues Uniform Charge Circular To MIIs

After the Securities and Exchange Board of India (Sebi) instructed market infrastructure institutions (MIIs) to charge its members uniformly from October 1, 2024, irrespective of their trade volume, trading platform Zerodha's co-founder hinted that it may have to end the zero brokerage system on its platform.

Nithin Kamath, co-founder, Zerodha, wrote in a post on X (formerly Twitter): “With the new circular, we will, in all likelihood, have to let go of the zero brokerage structure and/or increase brokerage for futures and options (F&O) trades. Brokers across the industry will also have to tweak their pricing.”

X platform users responded to the post saying they will have to rethink continuing with popular discounting platforms and move back to traditional brokers if they are not getting free brokerage services.

Details Of Sebi Circular

Sebi has directed MIIs to levy charges uniformly from all members regardless of their activity volume, instead of using a slab-wise charge structure. MIIs include stock exchanges, clearing corporations, and depositories

This directive is to be complied with by October 1, 2024. Discount brokers or brokerage firms that provide trading services without offering research reports or advisory services are likely to have a huge impact from this circular.

Aftermath Of Sebi’s Circular

The stock prices of popular discount broking firms have experienced significant drops due to a regulatory order for stock exchanges to collect uniform levies. Scrips of Angel One and Motial Oswal Financial Services fell from Rs 2,545 to Rs 2,377 and Rs 592 to Rs 562, respectively, in two days. This order could lead to a substantial decrease in brokerage incomes, thus affecting discount platforms and zero-brokerage plans.

Kamath said his company might have to do away with its zero brokerage structure, or increase brokerage for F&O trades, or both.

He explained in his blog post, "The difference between what the brokers charge the customer and what the exchange charges the broker at the end of the month is a rebate. Such rebates are common across the major markets in the world. We earn about 10 per cent of our revenue from these rebates. This could range between 10 per cent and 50 per cent of the revenue for other brokers. For us, this has increased from 3 per cent to 10 per cent in the last four years because of the increase in options turnover. Today, 90 per cent of our revenue from these rebates comes from options trading alone. With the new circular, brokers will no longer earn these rebates."

Sebi has set up a working group to address concerns about the steep increase in retail participation in options trading in the last few years. But Kamath feels the restriction of leverages on intra-day trading in 2020 led to a huge number of retail investors moving to options trading. This has raised regulatory concerns for businesses, such as stock brokers.

Meanwhile many smaller stock trading platforms have come out on the X platform saying they will uphold zero brokerage policy even if their business will be impacted by the Sebi circular.

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