SEBI's Standardized Fee Structure: Leading Discount Brokers Could Face Up to 20% Decline in FY25 Revenue

India IPO

Updated July 04, 2024

Zerodha and Groww declined to comment on the potential impact on their financials or operational strategies following these developments.

SEBI's Standardized Fee Structure: Leading Discount Brokers Could Face Up to 20% Decline in FY25 Revenue

SEBI's introduction of a true-to-label fee structure for brokers is expected to level the playing field, particularly benefiting smaller or startup firms entering the broking services sector.

This move is likely to reduce revenues significantly for top discount brokers like Zerodha, Groww, and Angel One in the current fiscal year, potentially impacting their bottom lines even more.

Zerodha, India's largest broker by revenue, reportedly generated between Rs 1,000-1,100 crore from rebates offered by exchanges during FY24. Founder Nithin Kamath noted on social media that these rebates constituted around 10% of the company's total revenue in FY25.

The directive primarily affects brokers handling over Rs 2,000 crore in monthly trading volumes, where exchanges like NSE charge Rs 30 per lakh of trade.

Brokers pass on costs to customers at Rs 50 per lakh, aligning with the true-to-label fee rates applicable if not for high volumes.

For brokers handling over Rs 3 crore per month, rebates of Rs 2.5 per lakh traded apply, translating into a net margin of Rs 20 per lakh transaction due to these rebates.

Zerodha and Groww declined to comment on the potential impact on their financials or operational strategies following these developments.

Business models across the industry are expected to evolve significantly, with venture-funded firms like Groww, Upstox, and Dhan likely cutting back on marketing and other expenditures.

Brokerages generally charge a fixed fee or a small percentage for equity delivery, with some, like Zerodha, not charging anything for equity deliveries.

"This directive poses challenges for brokerages relying on competitive fee structures to attract and retain clients, impacting pricing strategies and revenue models," noted Tejas Khoday, Co-founder and CEO of FYERS.

The impact is expected to be more pronounced for mid-sized brokerages heavily reliant on Futures and Options (F&O), which typically contribute up to 90% of their revenues.

While larger firms like Zerodha might absorb the changes, listed entities such as Angel One and Motilal Oswal face challenges in adjusting strategies and explaining these shifts to investors.

Smaller firms view the new fee structure as an opportunity to compete on a level playing field, emphasizing innovation and revenue diversification over the previous race-to-zero fees model.

Overall, the industry anticipates a significant shift in operational dynamics and competitive strategies following SEBI's latest regulatory move.