Zero brokerage plans nearing expiry

Mumbai: Zero brokerage as a service perquisite could well be a thing of the past as regulatory changes, such as Tuesday’s new measures aimed at curbing the F&O frenzy, push up transaction charges and cause trading volumes to decline.

Angel One, India’s third-largest brokerage by client count, introduced a flat fee of ₹20 or 0.1% of turnover (whichever is lower) on cash market transactions starting November 1, anticipating a drop in revenues from the derivative segment. Previously, these transactions were free of charge.

Market participants expect other brokerages to raise their fees, which could take the sheen off discount broking that had broken the stranglehold of big banks.

“In the changing environment, it is no longer easy for the broking industry to survive on such low fees,” said Dhiraj Relli, MD, HDFC Securities. “Fees will have to increase, especially for discount broking firms, as they have been relying on F&O volumes, which are likely to be impacted by the new Sebi circular.”

Sebi, in a July 1 circular, stated that Market Infrastructure Institutions (MIIs) must ensure that the fees charged by members are equal to the fees charged to customers. It further mandated that the charges must be uniform and consistent, regardless of the volume or activity of the members. MIIs include stock exchanges, clearing corporations, and depositories.

This regulatory directive for uniform transaction levies could shrink brokerage incomes by over ₹2,000 crore, hitting discount platforms the hardest and ending zero-brokerage models.”Most brokerages will levy fee on equity delivery, as the revenue impact from the ‘True to Label’ circular is around 15% to 20%, and there are limited scalable revenue streams in the broking business,” said Tejas Khoday, co-founder & CEO of FYERS Brokerage. “Mid- and small-sized broking firms will feel the impact more severely, as their ability to serve customers will be restricted.”Previously, MIIs charged brokers a flat rate based on turnover, starting at ₹3.25 per lakh of trades for up to ₹1,250 crore in cash market turnover, with lower rates for higher volumes. This volume-based discount boosted the earnings of large brokers, who charged investors a flat ₹3.25 per lakh, pocketing the difference.

A spokesperson from Zerodha said they are not changing their broking fees at present. However, Zerodha’s founder, Nithin Kamath, mentioned last week that the company is preparing for a “big revenue hit” later this year as tighter rules on index derivatives take effect. “Index derivatives account for a significant portion of our revenue, and any changes will impact us. We expect a 30% to 50% drop in revenue,” Kamath said in a blog.