Fyers enters institutional broking, experts skeptical due to cost and margin challenges

Fyers CEO Tejas Khoday earlier in the month said, the company aimed to level the playing field for all professional investors.

Discount brokerage firm Fyers is planning to offer broking services for institutional clients.

Earlier this month, Fyers CEO Tejas Khoday said the company aimed to level the playing field for all professional investors. He said there was an imbalance in the market with institutional investors paying hefty brokerage fees and retail investors enjoying zero charges.

“It's about time we shake things up in the interest of investors who incur such high charges,” he said.

Discount brokerages charge near zero brokerage for buying and selling stocks and make most of their money by charging minimal flat fees on options trading. Options trading in the country has surged significantly in the last five years with retail traders contributing a lion’s share to it.

On the other hand, institutional broking business offers research capabilities as their core offering. They also facilitate company management interactions with buy side analysts and fund houses. These services help institutional brokers acquire clients. There is a huge cost associated with providing such services, which could make it difficult for discount brokers to make inroads into institutional broking.

Institutional brokers told Moneycontrol that statutory charges makes up bulk of the fees paid by mutual funds and the broker only gets one third of the total fees.

“The current bundled price paid by mutual funds are already lower than the unbundled rates paid by international funds. So I’m not sure if there is a big problem to solve here," an institutional broker said on the condition of anonymity.

Institutional clients also have access to Direct Market Access where brokerage fees will be on the lower side, leaving low margins for brokers.

Direct Market Access is an electronic trading method where investors can execute trades by directly interacting with an electronic order book provided by the stock exchange.