Sebi’s new mandate: The beginning of the end for zero brokerage fees?
“You must pay for everything in this world one way and another. There is nothing free except the Grace of God." – Charles Portis
End clients of brokers might feel the same come 1 October, the day when a 1 July circular issued by the Securities and Exchange Board of India (Sebi) for market infrastructure intermediaries (MIIs), such as stock exchanges, clearing corporations, and depositories, comes into effect.
This is because after 1 October, end clients of brokers, who are used to zero brokerage or low brokerage on delivery-based trading, and onintraday and futures and options (F&O) trading from their discount brokers, might have to start paying higher brokerage.
Globally, most new-age brokers generate a significant portion of their revenue by routing clients' order flow to market makers such as stock exchanges, which in turn either give a small portion of the money they collect from the end clients of brokers to process their orders or give rebates.
Although they might look minuscule on a per-trade basis, these rebates, when aggregated over a large set of trades over a month or year, become a significant portion of these brokers' revenue.
As per publicly available information, the BSE and the NSE charge a transaction fee of 0.00375% and 0.00322%, respectively, for equity intraday and delivery-based orders placed by brokers' end clients. If the brokers generate a large volume of orders, then these exchanges share a portion of their revenue with the brokers as a slab-based rebate.
Apart from these rebates, these brokers collect these transaction charges daily from their end clients, but brokers pay aggregate charges to the members monthly. This provides the brokers with negative working capital or a floating fund to
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