Zerodha, one of the largest discount brokers, said on Tuesday it will in all likelihood have to abandon its zero-brokerage model and raise derivative trading fees after the market regulator mandated uniform charges that are not based on volumes.
Exchanges often charge a lower fee to brokers if they generate high volumes. Brokers, in turn, charge traders little to no fees, which has contributed to a surge in trading across segments like derivatives that the Securities and Exchange Board of India (SEBI) wants to curb.
The new fee structure, which kicks in from October, has a significant impact on 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, which are derivative products in the stock market.
“Brokers across the industry will also have to tweak their pricing.” Kamath hinted at potential fee increases, noting, “We were one of the last remaining brokers that offered free equity delivery trades. We could do this because futures and options (F&O) trading revenues were subsiding equity delivery investors. 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. Brokers across the industry will also have to tweak their pricing.”
The exchange transaction charge, which constitute between 15 per cent-30 per cent of large brokers' revenues and more than 50 per cent of discount brokers', is crucial for their sustainability, said Tejas Khoday, CEO and co-founder of discount broking firm FYERS.
"A 100 per cent pass-through of exchange transaction charges threatens to destabilise the discount brokerage business model," Khoday said.
The revenue impact on Zerodha could be 10 per cent, and 10 per cent-50 per cent for the industry, Kamath estimated.
The SEBI had warned of rising risks due to a surge in derivative trading. Regulators were discussing steps to cool the frenzy, Reuters reported last month.
(REUTERS)
