Nithin Kamath Announces Possible End to Zerodha's Zero Brokerage Structure for Equity Delivery Trades Following SEBI Order

-


Disclaimer: The information provided in this article is based on statements made by Nithin Kamath and recent SEBI regulations. The specifics of Zerodha's future fee structure and the full impact of SEBI's order are still under evaluation and subject to change.

Zerodha's co-founder, Nithin Kamath, recently shared on social media platform X that the brokerage may need to reconsider its zero brokerage model for equity delivery trades. This potential change comes in response to a SEBI circular mandating that all market infrastructure institutions, including stock exchanges, strictly adhere to their fee charging practices.

Since 2015, Zerodha has maintained a zero brokerage policy for equity delivery trades, subsidizing this with revenue from F&O (futures and options) trading. However, this structure might now change due to the new SEBI regulation. Kamath stated, "As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&O brokerage."



SEBI’s New Regulation

SEBI's circular specifies that fees imposed by market infrastructure institutions like stock exchanges, clearing corporations, and depositories should be standardized and not tied to trading volumes. This regulation aims to ensure transparency and fairness in fee charging practices across the market.

Kamath emphasized that this new regulation significantly impacts brokers, traders, and investors alike. He noted, "This becomes all the more important given the big uncertainty around the future of F&O trading volumes. We are still trying to ascertain the second-order effects of the circular."

Possible Changes in Brokerage Fees

Kamath highlighted that Zerodha might have to let go of the zero brokerage structure for equity delivery trades, a model they have upheld for the past nine years. He added, "We are one of the few remaining brokers offering free delivery trades. Many newer brokers who started out with free delivery trades have started charging a brokerage in the last couple of years."

The SEBI circular also addresses the practice of exchanges offering reduced fees to brokers who generate substantial trading volumes. This practice has historically fueled increased trading activity in segments such as derivatives.

Impact on Brokers' Revenue

Brokers often receive rebates based on the total turnover they generate, with these rebates forming a significant part of their revenue. Kamath explained that for Zerodha, these rebates make up about 10% of their revenue. For other brokers, this can vary from 10% to 50%. "For us, this has increased from ~3% to ~10% in the last four years because of the increase in options turnover. Today, 90% of our revenue from these rebates comes from options trading alone. With the new circular, brokers will no longer earn these rebates," Kamath noted.

Conclusion

As SEBI implements these new regulations, brokers, including Zerodha, may be forced to adjust their pricing models. Kamath expressed hope that exchanges will pass the benefits to customers by charging the lowest fee slab, minimizing the impact on F&O brokerage fees. However, the full implications of these changes are still being assessed, and Zerodha is exploring how best to adapt to this new regulatory environment.

Disclaimer: The information provided in this article is based on statements made by Nithin Kamath and recent SEBI regulations. The specifics of Zerodha's future fee structure and the full impact of SEBI's order are still under evaluation and subject to change.

Comments

Post a Comment

Best Blogs

IB Interview Questions: M&A : Level 1 M&A Questions

-
Image
1. Why do companies merge? While are many reasons that companies merge the underlying driver of most M&A deals to expedite growth and/or generate cost savings to create value for the owners of the business. When people say that M&A is an ‘art’ and a ‘science’, what does that mean? The science refers to the mechanical valuation methods (Comps, DCF, etc.), but the art is in making a judgment call on valuation based on the outputs of the various valuation methodologies. 2. Who can pay more when buying a company: a Financial buyer or Strategic buyer? Why? Strategic (i.e. corporate) buyers can typically pay more than Financial (i.e. Private Equity) buyers because strategic buyers typically have overlapping operations that can be removed post-merger to generate cost savings (i.e. Synergies). 3. When are sponsors and corporate buyers on equal footing? When a Financial buyer already owns a competing asset, they can generate synergies (which justifies a higher price) and thus are on mor...
Read more

Getting into Investment Banking: A Comprehensive Guide

-
Image
Introduction Breaking into investment banking (IB) is no small feat, whether you're pre-MBA or post-MBA, from a target or non-target school. While high GPAs and test scores are standard, they are often not enough to stand out. Here’s a strategic approach to help you embark on a successful investment banking career. 1. Network Extensively When your application lands at an investment bank, it’s usually reviewed by a small team of bankers responsible for recruiting from specific schools. Given the competitive nature of this field, networking is crucial. Why Networking Matters: Decision-making bankers are more likely to advocate for you if they know you. Especially vital for non-target school students. Engage with alumni and other connections at your target firms. How to Network: Start reaching out to analysts and associates a few months before core recruiting starts. Look for non-target alumni if you're from a non-target school; they often help each other out. Demonstrate Interest...
Read more