On July 2, 2024, Zerodha’s Co-Founder and CEO, Nithin Kamath, announced that they might need to end their zero-brokerage model. This comes after a new rule from the Securities and Exchange Board of India (SEBI) was introduced. According to that, SEBI requires all the market players to follow a uniform charge structure.
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New SEBI Regulations
SEBI has mandated a uniform charge structure for all brokers. This means that Zerodha may have to raise fees for futures and options (F&O) trading. This move could affect the entire brokerage industry. Kamath shared this information on the social media platform X (formerly known as Twitter).
Current Fee System Explained
Currently, stock exchanges charge transaction fees based on the total turnover of the brokers. A part of these fees which are called rebates, is returned to brokers. They depend on their monthly turnover. This system has been common in many global markets.
SEBI’s Aim for Fairness
SEBI wants to ensure that all fees and rebates are fair and transparent. The new rules are designed to create a level playing field for all the market participants. Regardless of their size, the new fee structure will be equal.
Impact on Brokers
Kamath explained that rebates make up about 10-50% of revenues for some brokerage firms. With SEBI’s new rule this revenue source will be removed. All the brokers will need to rethink their pricing strategies.
Rising F&O Trade Volumes
SEBI Chairperson Madhabi Puri Buch talked about the increasing volumes in F&O trades. She mentioned that people are borrowing money for speculative bets in the derivatives market. This could be risky for household savings.
Government’s Caution
In May, Finance Minister Nirmala Sitharaman also expressed concerns about the rapid rise in retail trading in F&O. She warned that it could pose risks to household finances and investor sentiment if not checked.
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Future of Brokerage Industry
Zerodha and other brokers prepare to adjust to these new regulations. The future of zero brokerage investing remains uncertain. This change shows the ongoing efforts to ensure transparency and fairness in the financial markets.
About the Author
Mr. Radhesh Tarang Shah, is a management student at Institute of Management, Nirma University. He has a passion for writing articles and poems. He has experience as a financial analyst, author, news writer, marketer and social worker.
