SEBI Circular for MIIs: How it will impact Brokerage firms

Finally, after 17 years India has won the T20 World Cup, a very proud moment for all Indians. So on such a special occasion let me start this blog in some interesting way related to our Indian Cricket team. 

Who is SEBI?

"SEBI is the Jasprit Bumrah of regulations, delivering precise and impactful overs to the market." 

With SEBI at the crease, the market is always on the front foot, just like Rohit Sharma's batting. 

Hope you like this never heard introduction of SEBI.

What’s Happening?

On Tuesday, July 02 the shares of stock broking firms like Zerodha, Angel Broking including depository participants fall sharply after Sebi’s Circular for MIIs (Market Infrastructure Institutions). MIIs members are Stock brokers, depository participants & clearing members.

What's Changing?

Currently Stock exchanges charge brokers slab wise based on Volumes and discount is given on larger volumes. So higher the volume, the less the broker has to pay to exchanges. These brokers, especially discount brokers like Zerodha make a lot of their money from these discounts. They collect the charges from their clients on daily basis but pay to Exchanges i.e. MIIs on a monthly basis based on monthly volume turnover. So now according to SEBI the same charge of exchanges to brokers has to pass to clients leaving no gain from price difference of amount paid to exchanges and amount collected from clients by broker.

For example, refer to above image stock brokers collect charges at a fixed rate of Rs 50 per lakh, options turnover from clients. Thus, for a monthly turnover of Rs 3,000 crore in equity options the broker would collect a total of Rs 1,50,00,000 and the amount he (Broker) will be paying to exchange (NSE) is only Rs 1,23,85,000. This directly nets into a gain of Rs 26,15,000 per month for the broker.

What's the new rule?

From October 1, 2024, all stockbrokers will be charged the same amount by exchanges, irrespective of Volumes traded. No special discount will be given to brokers that are trading in huge volumes & this will hamper their top line badly and that’s why they are worried. It is said that 10% of Zerodha’s revenue came from this slab structure. 

How will it work?

1. True to Label Charges: Now whatever amount or charges the broker tells you as a client comes from exchanges. It will be the exact amount what exchanges charges to broker.

1. Uniform Charges: All the Brokers will pay the uniform fixed charges to exchanges and not based on volumes.

1. Benefits to Clients: The charges will be now lower for investors as compared to earlier amounts charged by brokers.

Thank you.

 Regards,

Milan Purohit,

Kautilya, IBS Mumbai.