Zerodha may end zero brokerage as SEBI stops volume discounts

The Securities and Exchange Board of India's (SEBI) new circular, which eliminates volume-based transaction fee discounts may force the likes of Zerodha to reconsider their zero brokerage pricing model.

In a post on X, Zerodha Founder and CEO Nithin Kamath explained that the difference between what brokers charge customers and what exchanges charge brokers was previously paid as rebates to brokers based on overall turnover, and it will disappear with the new SEBI regulations.

"We earn about 10% of our revenue from these rebates. This could range between 10% and 50% of the revenue for other brokers. For us, this has increased from ~3% to ~10% in the last four years because of the increase in options turnover," Kamath also wrote in a company blog post.

"Today, 90% of our revenue from these rebates comes from options trading alone. With the new circular, brokers will no longer earn these rebates," the post added.

With the end of rebates, Zerodha may need to introduce brokerage fees for equity delivery or increase F&O brokerage to maintain financial stability.

"We were one of the last remaining brokers that offered free equity delivery trades. We could do this because F&O trading revenues were subsiding equity delivery investors," Kamath said in his post on X.

The stock markets regulator on Monday directed stock exchanges and other market infrastructure institutions (MIIs) to implement a uniform and equal charge structure for all members rather than varying charges based on their volume or activity.

The regulator instructed stock exchanges, clearing corporations, and depositories constituted as MIIs to ensure that any charges recovered from the end client are 'True to Label'.

It means that if a certain charge is levied on the end client by members—stock brokers, depository participants, clearing members—it should be ensured by MIIs that the same amount is received by them.

(With inputs from PTI)