Zero brokerage isn’t free as brokers earn from float, says Sebi's Ananth Narayan

Ananth Narayan, whole-time director of SEBI

Investors get zero brokerage not because the broker likes the customers' face but because the broker is making money from the float lying in the ecosystem, Ananth Narayan, a whole-time director of Securities and Exchange Board of India (SEBI), said on December 12.

Narayan, who was speaking at the India Fintech Forum in Mumbai, said that the total amount of cash-equivalent collateral that investors put in the ecosystem in an average day is around Rs 4.5 lakh crore.

Since things have become so efficient in the markets, it would be a bad thing for intermediaries like brokers, since they were making money off inefficiencies, Narayan added. However, he said that the intermediaries never had it so good so far.

"They’re making substantial revenues from their client base and the size of the pie has grown so much that, even though their share of the pie has shrunk to very small numbers, they are still making far more than they did 30 years ago," Narayan added.

He added that improving efficiency, reducing costs, and reducing risks is beneficial for everyone—even if it may seem like a bad idea for intermediaries at first.

Narayan was saying that in the 70s and 90s it would take 15 days for settlement of an equity stock. This was because of the lack of transparency, he said, while adding that when someone purchased a stock, the broker would charge anything within the range of that day’s price.

"Sometimes, the broker would even charge something outside of that range with no transparency about the price and plus investors had to pay a heavy brokerage fee over it," he said.

ASBA for secondary markets

ASBA for secondary market’s facility to enable trading based on blocked amounts in the secondary markets is already available in the primary market. However, the volumes in both are close to zero currently but the regulator expects it to pick up over time, he added.

"The same thing happened with demat and ASBA. When we first introduced them, they didn’t take off immediately," said Narayan.