End of discounts? SEBI's ruling impacts Zerodha in big way
The Securities and Exchange Board of India (SEBI) has issued a circular, requiring market infrastructure institutions (MIIs) to be transparent about their charges from October 2, 2024. This directive affects not only brokers like Zerodha, but also trading and investing customers. Stock exchanges typically calculate transaction fees based on the total turnover contributed by a broker in a month, with higher turnovers leading to lower transaction fees.
Rebate revenue to be affected
The difference between what brokers charge customers, and what the exchange charges the broker at the end of the month is termed as a rebate. These rebates, common across major markets globally, constitute a significant portion of revenue for many brokers. Some brokers earn about 10% of their revenue from these rebates, while others could see this figure range between 10% and 50%. However, with SEBI's new circular, brokers will no longer earn these rebates as per Nithin Kamath.
Take a look at Kamath's views
Circular in response to options trading surge
SEBI's circular comes amid a surge in options trading turnover and associated regulatory concerns. The board has set up a working group to study and address the steep rise in retail participation in options trading. This rise is largely attributed to restrictions on leverages on intraday trading implemented in 2020. The new directive could potentially alter existing business structures, impacting both brokers and customers alike.
Potential business structure changes
Since 2015, many businesses have subsidized equity investments with revenue from Futures & Options (F&O) trading activity. However, the uncertainty surrounding future F&O trading volumes due to SEBI's new circular, may compel businesses to introduce brokerage fees for equity delivery investments or increase F&O brokerage. This change could significantly impact all brokers' financials, possibly forcing them to adjust their pricing models within a few months.
