Zerodha’s co-founder and CEO Nithin Kamath said that the broking house will have to shift from its zero brokerage model or will have to raise brokerage charges on the F&O segment. This came after SEBI issued a new circular mandating all market infrastructure institutions, like stock exchanges, to be “true to the label” in fees they levy.
“Since 2015, when we went 0 brokerage on equity delivery, we have subsidised equity investments with the revenue from the F&O trading activity. This structure could now potentially change,” said Kamath in a blog post.
Stock exchanges charge transaction fees based on the overall turnover contributed by brokers. Now, SEBI has asked stock exchanges, depository institutions, and other market infrastructure institutions to charge all its members uniformly and not based on trading volumes.
This circular has an impact not only on brokers but also on trading and investing customers, said Kamath.
Effect on brokers
Kamath explained that 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, which goes to brokers. Such rebates are common across the major markets in the world.
For Zerodhar, these rebates account for about 10% of their revenues. While anywhere between 10-50% of other brokers across the industry, said Kamath.
“For us, this has increased from ~3% to ~10% in the last four years because of the increase in options turnover. Today, 90% of our revenue from these rebates comes from options trading alone. With the new circular brokers will no longer earn these rebates.”
Effect on Investors
Zerodha was one of the few remaining brokers offering free equity delivery trades, which they could set off with the F&O trading revenues. “As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&O brokerage,” read the blog post.
