Zerodha’s Nithin Kamath sees end of road for zero brokerage model after new Sebi rules

Bengaluru-based stock broker Zerodha could go back to charging customers for equity trade deliveries, as a direct consequence of markets regulator Securities and Exchange Board of India’s (Sebi) July 1 circular on charges levied by market infrastructure institutions.

“As a business, we may have to introduce a brokerage fee for equity delivery investments, which is currently free, or/and increase F&O (futures and options) brokerage,” wrote Zerodha chief executive officer Nithin Kamath in a blog post on Tuesday.

On July 1, Sebi issued a circular stating that charges levied on customers in lieu of fees levied by market institutions should have complete parity. It also said that the charge structure should not be slab-based but rather should be uniform for all brokers irrespective of trading volumes.

Commenting on the circular, Kamath said that the difference between what the brokers charge the customer and what the exchange charges the broker at the end of the month is a rebate and shows up as revenue for every broker.

For Zerodha around 10% of its revenue comes from these rebates. Around 90% of this revenue comes from F&O trades done by its customers on the platform.

Given the increase in dependence of stock brokers on the F&O volumes in the country, such a move could erode a significant chunk of revenues for these platforms. This has prompted Kamath who runs one of the largest stock broking platforms in the country to rethink his pricing strategy.

Interestingly it was Zerodha back in 2015, which was one of the first platforms to introduce zero brokerages and ushered in a major change in the way tech-first brokers operated in the country.

Kamath pointed out that this circular could be truly beneficial to customers, if the exchanges charge the lowest slab to brokers, which could mean that the effective impact on their revenue could be minimal.