Broking stocks fall sharply after SEBI’s circular on transaction charges; Angel One cracks up to 11%

Broking stocks gained traction in Tuesday’s trade (July 2) as the market watchdog Securities and Exchange Board of India (SEBI) in a blow to discount brokers on Monday asked market infrastructure institutions (MIIs), including stock exchanges, depositories and clearing corporations to charge a "uniform and equal" fee structure for all members rather than the varying charges based on their volume or activity.

Shares of Angel One at day’s low declined up to 10.5 per cent to Rs 2307.95, while at the last count it was down over 7 per cent or Rs 195.7 at Rs 2,383.05 apiece on the BSE. The stock registered its worst intra-day fall since March 27, 24. 

Meanwhile, other brokerage stocks also reacted negatively, with the likes of Motilal Oswal Financial Services down over 3 per cent, IIFL Securities down 5 per cent and 5paisa Capital down over 1 per cent.

As a general practice, exchanges levy a lower fee on brokers in a case if they generate high volumes, nevertheless, the new SEBI circular asked MIIs to not offer discounts considering turnovers. 

"To begin with, the new charge structure designed by MIIs should give due consideration to the existing per unit charges realised by MIIs so that the end clients are benefited from the reduction of charges," Sebi said in a circular dated July 1.

Also read No more free services from discount brokers as Sebi orders MIIs to ensure uniform charge structure for their members

The new rules will come into force from October 1, according to the circular. 

The market regulator said the current fee structure goes against the principle of equal, fair and transparent access to all market participants.

Understanding SEBI's circular layman's language or with an investor's eye.

Vaibhav Vidwani, Research Analyst- Bonanza Portfolio said the latest circular from SEBI discusses how charges levied by Market Infrastructure Institution (MII), such stock exchanges, clearing corporations, and depositories, have to be uniform and not contingent on volume. Brokers who deliver large volumes are frequently rewarded with lower charges from exchanges which encourage trading in segment like derivatives.

The move is anticipated to have a significant negative impact on the income of discount broking companies like Angle one, Grow and Zerodha. The reimbursements that exchanges provide for the volumes they
produce, account for a sizeable portion of their revenue. Angel One had earned near to Rs.450 Cr. from transaction and depository charges in FY2024, which is 10% of its revenue, he added.

Additionally, he mentioned that SEBI has instructed MIIs to make sure that the charges that are recovered from end users are "true." The charges that are imposed on MII should only be imposed by their clients on Investors. The action was taken after SEBI discovered that the total charges that the members had gathered from their end clients exceeded the charges that were paid to the MII at the end of each month (because of slab benefit).