The recent adjustments made by the Securities and Exchange Board of India (SEBI) have significantly impacted the income of brokers and asset management firms, according to Ashish Rathi, Whole Time Director at HDFC Securities. The increase in the limit for basic services demat accounts, alongside new guidelines on derivatives and the true-to-label rule, has reshaped the financial landscape for these institutions.
SEBI’s Impact on Broker Earnings
In a discussion marking HDFC Securities‘s 25th anniversary, Rathi highlighted two major factors influencing revenue trends. The demat account limit was raised from ₹2 lakh to ₹10 lakh, resulting in a 25-30% decline in income from demat services. Additionally, the true-to-label rule has leveled the playing field by ensuring that brokers no longer benefit disproportionately from discounts provided by exchanges.
- Demat Account Limit Increase: From ₹2 lakh to ₹10 lakh
- Income Reduction: Estimated at 25-30%
- True-to-Label Rule: Aimed at standardizing fees across market institutions
Navigating Financial Challenges
Rathi emphasized that to adapt to these changes, brokers might consider increasing their service charges. “If trading volumes improve, there are options to explore,” he mentioned. However, he cautioned that if the pressure on margins persists, firms may have to take steps to adjust their pricing structures to maintain profitability.
Additionally, HDFC Securities is exploring avenues such as cross-selling and utilizing a distribution model to boost income streams. This strategic shift could provide a buffer against the declining revenues from traditional demat services.
Regulatory Changes and Their Effects
Effective September 1 of the previous year, SEBI expanded the basic services demat account limit to ₹10 lakh to promote financial inclusion. The regulator also raised the threshold for waiving annual maintenance fees from ₹2 lakh to ₹4 lakh.
In July, SEBI introduced the true-to-label rule, which requires all market infrastructure entities—including stock exchanges and depositories—to adopt a consistent fee structure. Furthermore, changes in the derivatives market, like increasing the contract size of options and limiting weekly expiries to one per exchange, have also impacted trading volumes.
Insights from HDFC Securities Leadership
Dhiraj Relli, CEO of HDFC Securities, pointed out the rapid growth in the derivatives market, noting that many new investors entered without a full understanding of the risks. “SEBI has intervened wisely to curb excessive speculation,” he stated, emphasizing the firm’s cautious approach in this volatile segment.
While most brokerage firms derive 70-85% of their revenue from derivatives, Relli indicated that HDFC Securities earns only 15% from this sector. The firm is also focusing on a suitability exercise for clients interested in derivatives, suggesting that potential investors should complete basic certifications or possess adequate trading experience.
In summary, the evolving regulatory landscape and market dynamics pose challenges for brokers, but they also present opportunities for innovation and growth in financial services. With strategic adjustments and a focus on customer education, firms like HDFC Securities aim to navigate these changes effectively.
