Sebi's new fee rules will hurt brokers more than F&O players: Capital Mind's Deepak Shenoy
Sebi's new fee rules will hurt brokers more than F&O players: Capital Mind's Deepak Shenoy
Market regulator SEBI's order to mandate a uniform charge structure across all market members will hurt brokers more than F&O traders, said Deepak Shenoy, CEO of Capital Mind, a financial research and investment advisory firm in Bangalore.
"For a lot of F&O players this can hurt somewhat, but it will hurt brokers more as brokerage numbers are competitive and those willing to keep lower margins will shine out," Shenoy said in a post on X.
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.
Posting a report on online trading platform Angel One's brokerage fee, the finance expert said that the company has earned roughly Rs 258 crore of "ancilliary transaction income" which is beyond brokerage - i.e. what they charge as turnover charges beyond brokerage minus what they actually paid out. They made Rs 1,192 crore in profit before tax last year, so this stream is important.
Interestingly, 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.
Shenoy added SEBI just said no more of this, and charge only true-to-label fees, meaning if you say it's an NSE fee, it should be what goes to NSE. (and NSE needs to charge the same fee without lowered fees for higher turnover).
To be sure, 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. Market infrastructure institutions, acting as first-level regulators, are now tasked with implementing these changes effectively.
In this regard, Shenoy also mentioned, "The space will get more regulation, for sure. But it will help separate the tough from the ordinary, in the longer term."
Meanwhile, Zerodha founder and Chief Executive Officer Nithin Kamath earlier today indicated the brokerage firm may have to abandon its zero brokerage structure and increase fees for F&O trading after Sebi's move.
“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.