SEBI circular for MIIs: How it will impact brokerage firms

The latest circular by the superior marketplace regulator Securities and Exchange Board of India (SEBI) connected charges levied by marketplace infrastructure institutions (MIIs) whitethorn importantly interaction the gross of brokerage firms and wide trading measurement arsenic well, according to experts.

SEBI, successful its circular connected Monday, July 1, communicated that MIIs, specified arsenic banal brokers, depository participants, and clearing members, would beryllium required to levy azygous and adjacent charges to its members.

Until now, MIIs person followed a volume-based slab-wise complaint structure, which, according to SEBI, tin hinder them from ensuring adjacent and just entree to each marketplace participants. The slab-wise complaint operation impacts the level playing tract betwixt members owing to their size differentials.

SEBI wants MIIs to redesign the existing volume-based slab-wise complaint structure. It said the MII charges to beryllium recovered from the extremity lawsuit should beryllium "true to label." This means that if MIIs levy definite charges connected the extremity client, they should guarantee that they person the aforesaid amount.

Exchanges enforce transaction charges connected a slab ground each month, but brokers cod these charges from their clients daily. Brokers complaint their clients astatine the highest slab complaint and grounds the quality arsenic nett net successful their fiscal statements.

After SEBI's guidelines, banal brokers volition not beryllium incentivised to make immense turnovers.

"The brokers volition not person immoderate inducement to make immense turnovers, and the market-making enactment volition beryllium adversely impacted. We estimation the broking industry's gross (and, successful turn, profitability) volition beryllium deed by astir ₹2,000 crore. This volition pb to an summation successful Brokerage rates, arsenic it volition go unsustainable for the broking companies to instrumentality specified a large deed connected their profitability. Thus, this volition pb to a drastic simplification successful trading measurement and the resultant terms discovery," said Nilesh Sharma, President and Executive Director astatine SAMCO Securities.

Many broking firms travel a zero brokerage exemplary for equity delivery, which is considered 1 of the biggest factors facilitating the beardown influx of retail investors. Experts spot SEBI's determination arsenic a measurement to curb accrued trading enactment among investors.

"The authorities has expressed interest regarding excessive speculation successful the banal market. In June of the erstwhile year, the regular mean currency measurement connected the NSE was ₹62,000 crore, which surged to ₹1.52 lakh crore—a two-and-a-half-fold increase. The debased brokerage fees person prompted accrued trading enactment among investors. There is simply a pressing request to code this issue," said Sunil Damania, Chief Investment Officer astatine MojoPMS.

Damania underscored that 1 mechanics that enabled brokers to connection zero brokerage connected currency transportation volumes was the 'rebate' provided by the exchanges. This tin alteration now.

"With the elimination of this rebate, galore brokerages volition apt commencement imposing charges connected currency transportation transactions oregon summation their fees for futures and options trading. This alteration marks an archetypal measurement toward regulating the market," said Damania.

Damania anticipates further measures successful the upcoming weeks, perchance successful the Budget announcement.

"It is expected that the authorities volition present further measures to restrain F&O (futures and options) trades, indicating much challenging times up for the brokerage industry," said Damania.

To mitigate the deed connected revenue, brokerage firms whitethorn bash distant with the zero brokerage model.

Zerodha's co-founder Nithin Kamath, successful a station connected societal media level X (formerly Twitter), wrote that the brokerage whitethorn request to reconsider its zero brokerage exemplary oregon perchance rise brokerage fees for F&O trades aft SEBI's circular connected charges levied by MIIs.

“Stock exchanges complaint transaction fees based connected the wide turnover contributed by brokers. The quality betwixt what the brokers complaint the lawsuit and what the speech charges the broker astatine the extremity of the period is simply a rebate, which goes to brokers. Such rebates are communal crossed the large markets successful the world,” Kamath said.

"With the caller circular, we will, successful each likelihood, person to fto spell of the zero brokerage operation and/or summation brokerage for F&O trades. Brokers crossed the manufacture volition besides person to tweak their pricing," said Kamath.

Read each market-related quality here

Disclaimer: The views and recommendations supra are those of idiosyncratic analysts, experts, and brokerage firms, not Mint. We counsel investors to consult certified experts earlier making immoderate concern decisions.