Gone are the days when holding a membership of a brokerage was not only an asset but also prestigious. One of the important intermediaries between the customers and stock exchanges, brokerages, have always played a crucial role.

When the trading shifted to online from open outcry model, it deepened the market, helping brokerages grow exponentially since 1995.

However, the recent developments will make stock broking more challenging, though most of the proposals are to improve transparency, fix responsibilities and protect greedy and gullible traders from overtrading.

ASBA in secondary market

The Securities and Exchange Board of India (SEBI), in its recent board meeting, decided to introduce ASBA for secondary market transactions as well. Though the Application Supported by Blocked Amount or ASBA-like facility will be optional for investors as well as stock brokers, industry experts believe SEBI will eventually make it mandatory for all transactions. This will impact float income — earnings from the idle balances of the customers — of brokerages.

Recently, the government hiked securities transaction tax, widely known as STT, on sale of futures and options to an extent of about 25 per cent. This move is likely to take some sheen off, for retail investors, who have been indulging in heavy trading.

Option volume zooms

Option trading volume has skyrocketed in recent times. The average daily turnover on NSE jumped from ₹26.2-lakh crore in FY21 to ₹71-lakh crore in FY22 and in February 2023, it stood at ₹208.20-lakh crore, as ICICI Securities data has revealed.

The number of of individual traders in index options and stock options went up by nearly 8 and 5 times, respectively, in last three years, according to market regulator SEBI. During FY22, 89 per cent of the individuals who traded in index options, 82 per cent in the stock options incurred average loss of ₹0.77 lakh and ₹0.66 lakh, respectively, SEBI’s study revealed.

Further, the NSE withdrew ‘Do Not Exercise’ facility for trading in stock options, which can also impact trading volumes. All these moves will result in higher cost for participants and, thus, could impact robust momentum seen in volumes over last three fiscals.

Possible game plan

HDFC Securities believes that stronger FinTech discount brokers have levers to offset the loss of float income through a combination of introduction of delivery fee; higher intra-day and F&O trading charges and large volume-led discounts from payment gateways.

“At an aggregate level, moderation in client accretion, tightening of regulations and higher compliance cost are seen leading to a gradual consolidation in the industry. Such anticipated consolidation in the industry is seen as beneficial for existing players, especially incumbents. They are well-placed with diversified source of revenue streams,” said ICICI Securities.

The brokerages will handle these too well, as they have overcome several challenges in the past, for the benefit of all stakeholders.