Stock Markets

The great Indian discount broking bazaar: Will SEBI play spoilsport?

Sohini Mitter

July 22, 2024 | 12 Min Read

India’s capital markets regulator SEBI wants to rein in the rushed madness in derivatives trading by introducing regulation that could potentially slow down overall trade volumes, hurt brokers’ revenue growth by a third, and herald the end of the discount broking era.

Key Takeaways

SEBI wants to slow down India's F&O market and has brought in a new regulation that will curb some revenue streams for brokerage platforms
Discount brokers, which derive 80-85% of their revenues from F&O trades, which in turn, allows them to subsidise equity trades, will be hit more than full-service brokers
SEBI’s move will now compel them to relook their deep discounting model and potentially lead to a rise in brokerage fees for investors
Industry insiders say broker toplines could be hit even further than 50%, and some of the smaller and mid-sized ones might find it tough to survive

About three weeks ago, a Reddit user posted on the popular IndianStreetBets subreddit, “I've seen doctors engaged in trading during market hours, teachers looking at their mobile every few minutes on their job, students talking about calls and puts in metros, Uber drivers constantly watching the trading screen while driving.”

Yet another post in the same week noted, “A BTech student lost Rs 26 lakh on F&O trading, reveals CA after filing ITR.”

It really is, as Dickens wrote, ‘the best of times, the worst of times, the age of wisdom, the age of foolishness’ in India’s capital markets.

Even as total demat accounts surged to a new record of 162 million and monthly SIP inflows into mutual funds hit an all-time high of Rs 21,260 crore in June, markets regulator Securities and Exchange Board of India (SEBI) isn’t breathing easy. Or as a two-decade-long trader told The CapTable, “Wherever there’s growth, there’s SEBI.”

While a plethora of discount brokers—which now occupy 64% of the overall market—have popularised the ‘investing’ mindset vis-a-vis the traditional ‘savings’ mindset among young Indians with their low-fee, seamless, tech-first offerings, their growth has also fuelled the country’s obsession with Futures & Options (F&Os), a far riskier asset class. It lets traders quickly make big bucks by speculating on future stock price movements.

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