Stock trading just got interesting

Last week, Paytm, the Alibaba-backed firm, announced through its blog that it has received market regulator SEBI’s approval to become a stock broker. In the blog, the company wrote, “We will be introducing new capabilities and offerings on our platform, such as trading in equities and cash segments, derivatives, and exchange-traded products.”

Paytm Money has also signed a partnership with the BSE and the NSE. Paytm Money currently offers its users mutual fund investments.

The company claims to have 30 crore registered users for its wallet or money transfer service. It may offer trading in shares mainly through its mobile app, according to reports.

A few days ago, traditional broking firms Axis Securities and Angel Broking announced a steep cut in their broking charges.

Axis Direct, the brokerage arm of private lender Axis Bank, introduced a plan ‘India Trade @20’, under which its customers would be charged a flat fee ₹20 per trade irrespective of the value of transaction.

“Existing customers are eligible only if they maintained a minimum ‘Average Quarterly Balance’ of ₹75,000 in their linked Axis Bank account in the last quarter,” Axis Direct said.

On the same day, IFC-backed Angel Broking rolled out flat-pricing for trades, wherein it would charge ₹15 for order sizes of up to ₹50,000, and ₹30 for those beyond.

While the Axis plan is offered to investors in both the equity and equity derivatives segments, Angel’s offer covers almost all segments — equities, futures & options, commodity and currency.

Client-retaining moves

While broking houses are already facing the heat from discount brokers, the entrance of Paytm could spark off a price war as well as consolidation in the broking space. Already most brokerages are offering free demat account with nil annual maintenance charges to ward off the threat from the discount brokers and retain their clients.

Not all customers will benefit from these low costs, as these discounts are mainly for volume traders. Ordinary investors still need to cough up normal fees, which are quite high compared to most international markets. As various studies have pointed out, day traders hardly make money and reducing trading costs may not matter much for them.

Currently, the Indian stock market is seeing very shallow participation with over 95 per cent of the investor population ignoring the equity markets. Unless awareness levels are increased and trading penetration improves, these reductions may just temporarily hog newspaper headlines without making a long-term impact.

Investor-centred market

Attracting more investors than traders to the stock market, who can go along with the brokers for the long term, should be the top priority. That is not a job for the brokers alone. SEBI and the exchanges must join hands to create awareness in a big way about equity investments and product specifications.

In addition, personalised service, bundling of products and resources for research could add value to the offerings of broking houses.

Unless the broking industry attracts long-term investors, their business model would carr high risks.

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