Suspense Crime Sach Ka Dam
SEBI has recently issued a circular, after which many regulatory changes are going to happen in the stock market. These changes may be in the interest of investors but are not good news for brokerage firms at all. The circular has directed market infrastructure institutions (MIIs), including stock exchanges, clearing corporations, and depositories, to levy a uniform fee on transactions from October 1. Stock exchanges have a slab-wise structure, where they charge brokerage firms a lower fee for high-volume transactions. However, brokerage firms charge this monthly operating expense to investors at the highest slab rate, making them profitable. The new rules aim to promote transparency and reduce the transaction fees paid by customers.
Another bad news for brokerage firms
The National Stock Exchange has clamped down on referral programs used by brokerage firms to expand their customer base. It has banned brokerage firms from using referral incentives unless the individual is registered with the exchange as an authorized individual. The move is aimed at reducing induced trading where investors may be lured into participating in risky referral activities or unauthorised investment schemes. This new rule may significantly impact online brokerage firms because, unlike traditional brokerage firms, they do not have sub-brokers or franchisees who are already authorized entities.
The government increased the tax.
The government has increased the securities transaction tax (STT) on futures and options (F&O) trades from 0.01% to 0.02% in the Budget. This too will be effective from October 1. Doubling the tax on trades could reduce transaction volumes. On the other hand, higher taxes will also increase investors’ leverage, potentially prompting them to take more risks.
Why are these changes being made?
SEBI has taken these steps to protect the interests of investors and reduce speculation in the stock market. SEBI says that in the year 2024, about 91 percent of F&O traders have lost a total of ₹ 75,000 crore in risky trades. Moreover, the flood of liquidity and the enthusiasm of retail investors is becoming a deadly combination for the world’s most expensive equity market. Industry experts consider these changes necessary for a sustainable investment scenario in the country as well as the balanced and systematic development of the capital market.
What will happen to brokerage firms?
Transaction cost gains and referral incentives have been the main revenue sources of brokerage firms, whose earnings may decline. According to Nithin Kamath, co-founder and CEO of Zerodha, one of India’s leading online brokerage firms, the firm is expecting a 10% decline in revenue by the end of this year. In such a situation, brokerage firms may introduce brokerage charges on equity delivery investments, which are currently free. At the same time, F&O trading fees may also increase.
