SEBI's uniform charge structure: Might have to increase brokerage for F&O trades, says Zerodha's Nithin Kamath

This will have a significant impact on brokers, traders, and investors, Kamath said in a blog post on July 2, adding that industry will have to adjust their pricing models

Zerodha founder and Chief Executive Officer Nithin Kamath on July 2 indicated the brokerage firm may have to abandon its zero brokerage structure and increase fees for F&O trading after markets regulator Securities and Exchange Board of India (Sebi) issued a directive to enforce a uniform charge structure across all market members.

Sebi’s move aims to eliminate varied charges based on member volume or activity. The market regulator's circular stated that market infrastructure institutions (MIIs) have to be “true to label” in the charges they levy from October 2nd, 2024.

Sebi has mandated that the new charge structure should lead to a reduction in costs for end clients, ensuring a fair and transparent market ecosystem. MIIs, acting as first-level regulators, are now tasked with implementing these changes effectively.

This will have a significant impact on brokers, traders, and investors, Kamath said in a blog post on July 2, adding that industry will have to adjust their pricing models.

“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,” Kamath said.

Explaining how the brokerage model usually works, Kamath said stock exchanges levy transaction fees based on the overall turnover contributed by brokers. The difference between fees paid by customers to brokers and brokers to exchanges is received by the latter as rebate, which is common across the world, Kamath highlighted.

"These rebates account for about 10 percent of our revenues and anywhere between 10-50 percent of other brokers across the industry. With the new circular, this revenue stream goes away."

Kamath added that they were one of the last remaining brokers that offered free equity delivery trades and they were able to do it because F&O trading revenues were subsidizing equity delivery investors.

"The hope with this circular is that the exchanges will pass the benefit to customers by charging the lowest slab. So, an increase in F&O brokerage shouldn’t be of any impact."

Meanwhile, the new Sebi directive had an impact on the shares of brokerage firms as Angel One slipped 8.72 percent, Geojit Financial Services fell 6.83 percent, while Motilal Oswal Financial Services declined 4.19 percent on July 2.

With inputs from PTI