FutureSenseIndia

Broking Industry Faces Major Impact: SEBI Rules Reshape Revenue Models

The broking industry is facing significant challenges due to recent regulatory changes, particularly impacting discount brokers. Key changes include:

  1. Restrictions on Utilizing Traders’ Funds:
    Previously, brokers could retain traders’ unused funds in their accounts and earn interest on them. However, new regulations require brokers to transfer these funds back to traders’ bank accounts, cutting off a significant revenue stream for brokers.

  2. Increased Margin Requirements for F&O Trading:
    The new rules mandate higher margins for Futures and Options (F&O) trading, which discourages small traders from participating in such trades. This is expected to reduce trading volumes and impact brokers’ earnings.

  3. Uniform Exchange Transaction Charges:
    Trading exchanges previously offered discounts of 5–10% (or more) on transaction charges to high-volume discount brokers. However, SEBI’s “true-to-label” rule, effective July 2, 2024, requires uniform charges across all brokers. This eliminates the cost advantage for discount brokers and increases their operating costs.

    • Zerodha’s founder has indicated that the zero-brokerage model for equity delivery trades may not be sustainable due to these changes.
    • Shoonya, previously offering commission-free brokerage, has announced the end of its zero-brokerage model. Starting December 2, 2024, Shoonya will introduce a new fee structure, including:
      • ₹499 annual maintenance charge (AMC) plus GST for active accounts.
      • ₹5 per order plus GST for intraday, F&O, and commodity trades.
      • Zero brokerage will continue for delivery trades, ETFs, bonds, IPOs, mutual funds, and other services.
  4. SEBI’s Framework to Address F&O Trading Addiction:
    SEBI has introduced a six-step framework aimed at reducing speculative trading in F&O segments. This may further lower trading volumes in the future, prompting brokers to diversify their revenue streams.

Future Outlook for Brokers

With trading volumes potentially declining and operational costs rising, brokers may start charging for additional services or shift their focus to new sectors like wealth management and investment advisory. The era of zero-brokerage policies appears to be nearing an end, with the financial burden likely to fall on end users.

The full impact on trading volumes and brokers’ profitability will unfold as these changes take effect. The industry may see further adjustments to fee structures as brokers adapt to the evolving regulatory landscape.

Leave a Reply

Your email address will not be published. Required fields are marked *