A new circular by SEBI is expected to have a significant impact on brokers, traders and investors. It may force trading platforms like Zerodha to say goodbye to zero-brokerage structure, revise their fees or increase the brokerage charges for F&O trades.
In a post on X, Zeordha CEO Nithin Kamath on Tuesday said, “With the new circular, we will, in all likelihood, have to let go of the zero brokerage structure and/or increase brokerage for F&O trades. Brokers across the industry will also have to tweak their pricing.”
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This article decodes the new circular and how it will affect brokerage platforms like Zerodha, which would eventually impact individual traders and stock investors.
What’s New
Through the circular dated 1st July 2024, capital markets Regulator SEBI has mandated market infrastructure institutions, like stock exchanges to be “true to the label” in how they levy charges.
“The MII charges which are to be recovered from the end client should be True to Label i.e. if certain MII charge is levied on the end client by members (i.e. stock brokers, depository participants, clearing members), it should be ensured by MIIs that the same amount is received by them,” the circular says.
It adds that the charge structure of the MII should be uniform and equal for all its members instead of slab-wise viz. dependent on volume/activity of members.
Further, the circular says, “new charge structure designed by MIIs should give due consideration to the existing per unit charges realized by MIIs so that the end clients are benefitted with the reduction of charge.”
MIIs include stock brokers, depository participants, clearing members. The charges are levied by them in lieu of various services and recovered from the end clients by members.
Also Read: New SEBI Rules for F&O Entry and Exit: What Traders Should Know
Why the New Rule?
As per SEBI, some MIIs are currently following volume based slab-wise charge structure
Also, members/brokers generally recover charges from end clients on daily basis whereas MIIs receive aggregate charges from members on monthly basis. This, according to the circular, leads to two situations:
- A situation wherein the aggregated charges collected by the members from the end clients is higher than the end of month charges paid to the MII (due to slab benefit) .
- Incorrect or misleading disclosure to the end client about charges levied by MIIs.
During deliberation on the matter, SEBI’s Secondary Market Advisory Committee (SMAC) observed that the existing slab-wise structure not only impacts transparency but it can also “create a hindrance for the MIIs in ensuring equal and fair access to all market participants by impacting level playing field between members owing to their size differentials.”
How will it impact brokers and investors?
Currently, brokers charge fees from customers/individual investors whereas stock exchanges collect fees from brokers based on their overall turnover.
The difference between fees charged by brokers from customers and by stock exchanges from brokers is 10-50%. This serves as a significant revenue stream for brokers, enabling them to offer services like zero-brokerage or cheaper F&O trades.
With the implementation of the new circular, this revenue stream of brokers will go away and they will have to tweak their pricing!
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.
FAQs
1. What is SEBI’s new rule for MII charges?
SEBI now requires Market Infrastructure Institutions (MIIs) like stock exchanges to levy charges directly on brokers, which may end “zero brokerage” models as brokers pass these costs to customers.
2. Does this mean zero brokerage trading will end?
Yes, brokers can no longer absorb MII fees entirely. Most discount brokers may introduce nominal charges, ending the “zero brokerage” era.
3. Why did SEBI introduce this rule?
SEBI aims to ensure fair revenue for MIIs, improve market infrastructure sustainability, and reduce cross-subsidization risks in brokerage models.
4. What are MIIs in this context?
MIIs include stock exchanges (NSE, BSE), depositories (NSDL, CDSL), and clearing corporations that charge transaction fees to brokers.
5. How much will trading costs increase for retail investors?
Costs may rise marginally (e.g., ₹5–20 per trade), depending on the broker. Long-term investors may see minimal impact, but frequent traders will feel it more.
6. Will all brokers charge fees now?
Most discount brokers will likely introduce small fees. Traditional brokers with existing fees may adjust pricing but won’t see drastic changes.
7. Are there exemptions to SEBI’s new rule?
No, the rule applies universally to all brokers. However, brokers may design plans to minimize costs (e.g., bundling fees with subscriptions).
8. How should traders adapt to these changes?
Compare broker fee structures, limit frequent small trades, and explore brokers offering flat-rate plans or loyalty discounts.
9. When will these charges take effect?
SEBI’s rule is effective from [insert date]. Brokers will notify customers about revised charges in advance.
10. Where can I read SEBI’s official guidelines?
Check SEBI’s website or circular no. for detailed rules. Brokers will also share updates via email/app notifications.
