Sebi directs market entities to ensure uniform fees

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New Delhi: The recent circular from SEBI has brought bad news for investors in the stock market. Some recent changes mandated by the market regulator SEBI could make investing in the stock market more expensive. Essentially, SEBI has directed stock exchanges to ensure uniformity in the charges levied on their members, which could impact discount brokers like Zerodha, Groww, Upstox, and Angel One. There is concern that this could mark the end of zero brokerage. Furthermore, brokerage firm Zerodha has also indicated this clearly.

“The impact of SEBI’s circular on investors, traders, and brokers will be significant,” according to Zerodha’s founder and CEO, Nitin Kamath. “As a business, we may have to levy brokerage fees on equity delivery investments that are currently free. Along with this, charges for futures and options trading could increase,” he says.

What does the SEBI circular entail?

SEBI issued a circular on July 1 directing stock exchanges and other market institutions to ensure uniformity in the charges they collect from their members and the charges passed on to customers. SEBI also said that the charge structure should not be based on volume, but uniform for all brokers, regardless of trading volume.

Currently, Market Infrastructure Institutions follow a volume-based slab structure. Members such as stock brokers and depository participants typically charge customers based on monthly trading volume.

Zerodha’s founder and CEO Nitin Kamath said, “Stock exchange brokers charge fees based on monthly turnover. The higher the turnover, the lower the transaction fee. The charges levied by brokers on customers and collected from exchange brokers at the end of the month include a difference similar to a rebate, which is shown as revenue for every broker. In Zerodha’s case, 10% of revenue comes through this rebate. In the case of other brokers, this can range from 10% to 50% while 90% of our earnings from this rebate come from options trading. Due to the new circular, brokers will have to lose out on these rebates.”

Zerodha used to levy charges in the case of equity delivery trades. But in 2015, the company abolished charges and made equity delivery trades free. It states that since 2015, they have been subsidizing equity investments with earnings from F&O trading. This structure could now change. Due to recent SEBI regulations, charges may need to be brought back for equity delivery trades.

SEBI’s circular impacts broking stocks

The impact of SEBI’s circular was also evident in the shares of brokerage firms on Tuesday. Angle One’s share fell by 8.7%, while Geojit Financial Services’ share dropped by 7.25%, and Emkay Global’s share by 4.7%. Meanwhile, Motilal Oswal Financial and IIFL Securities saw declines of 4.2% and 3.7% respectively in their shares.

SEBI’s latest circular, effective October 1, 2024, is being seen as the end of zero brokerage. Zerodha has also hinted at this. If other discount brokers like Zerodha start charging brokerage fees on equity delivery investments or increase brokerage charges on futures and options trading, customers will bear the burden, making investments more expensive.