SEBI’s Uniform Charge Structure for Stockbrokers

SEBI’s Uniform Charge Structure for Stockbrokers

Sub: Economy

Sec: Capital MARKET

The Securities and Exchange Board of India (SEBI) has mandated stock exchanges and other market institutions to implement a “uniform and equal” charge structure for all stockbrokers, irrespective of the nature of the transaction.

Current Charging Mechanism

• Volume-Based Charges: Currently, stock exchanges impose charges on stockbrokers based on the volume of transactions. Higher transaction volumes attract lower per-unit charges.
• Discrepancy in Charge Collection: SEBI observed discrepancies in how charges are collected daily from clients by brokers and how brokers pay these charges monthly to exchanges. This has led to brokers collecting more in aggregate than they pay.

SEBI’s Directive

• Uniform Charge Structure:
• All members (stockbrokers) must be charged equally, with no differentiation based on transaction volume or activities.
• True to Label Charges:
• Charges recovered from clients must reflect the actual charges imposed by the exchanges.
• End clients should benefit from reduced charges starting from the per-unit level.

Impact on Stockbrokers

• Revenue Streams:
  • The difference between charges paid to exchanges and those recovered from clients is a significant revenue stream for brokers. SEBI’s directive could impact this revenue stream.
  • The impact will vary among brokers depending on their reliance on this income.
• Specific Cases:
  • Zerodha: Currently earns about 10% of its revenue from this difference. Might have to introduce brokerage fees for equity trading, which is currently free, due to the potential loss of revenue.
  • Geojit Financial: Reported that the difference income constitutes a minor part of their total income and profit. Expects an increase in brokerage rates offered by discount brokers.

Stockbrokers and Their Brokerage Charges

Stockbrokers are intermediaries that facilitate the buying and selling of securities (such as stocks, bonds, and mutual funds) on behalf of investors. They provide various services, including executing trades, providing investment advice, and managing client portfolios. Brokerage charges are the fees that brokers charge for their services.