The new SEBI rules on uniform levy may dissuade new discount brokers from entering the market, impact trading volumes, and give investors a clearer picture of fees charged.
Brokerage charges, which have not increased in over a decade, may rise 30-100 per cent, said experts. Discount brokers not charging anything or levying a low fee will be the first to increase brokerage, after taking into account competition from peers and the potential loss of market share. Full-service brokers, on the other hand, are likely to absorb the revenue hit and not tinker with rates. Any increase in fees may happen over 3-6 months.
“Full-service brokers will now compete with a pricing structure that may not be as competitive as before, enabling them to attract a higher number of new customers vis-a-vis discount brokers. At the same time, existing customers of discount brokerages will not necessarily migrate to full-service brokers unless they are dissatisfied with the former and the rate differential is very narrow,” said Deepak Jasani, Head – Retail Research, HDFC Securities.
Discount brokers charge a flat fee of ₹20 for intraday and F&O trades. Full-service brokers charge 20-30 bps as a percentage of the quantum of delivery trades placed, which is negotiable.
Discount broking has continued to attract new players. PhonePe, for instance, entered the space last year with its Share.Market platform. Brokers such as Zerodha had disrupted the industry with its discounting model, which remains the mainstay of digital brokers to this day.
Advantage investors
The new SEBI rules on uniform levy will standardise charge structures across all market members, ensuring greater transparency, making it easier to compare brokerage services.
“While investors might initially benefit from reduced costs, brokers might eventually adjust their fees to maintain profitability, potentially leading to higher trading costs. This also encourages brokers to innovate and offer better value-added services to stay competitive,” said Tejas Khoday, Co-founder and CEO of discount broker FYERS.
Price-sensitive investors might reduce their trading activity if fees go up, said Khoday. However, long-term investors, focussed more on performance than on transaction costs, might be less affected. He said that brokers may counter higher fees by offering enhanced services to retain clients.
“Trading volumes for high frequency, algo or prop traders may reduce initially depending on the increase in charges. On the flip side, traders may get more active if there is volatility and there are opportunities to make money to make up for the loss of income from higher brokerage,” said Jasani.
Brokers may introduce strategies to retain clients, such as improved trading platforms and better research services, said Khoday. Smaller brokers heavily reliant on transaction fee arbitrage might struggle, leading to market consolidation, he said.
