Volume-linked incentives gone, brokers’ income may take a hit

Mumbai: Discount brokers are bracing for a further dent on their profitability in the March quarter as the regulatory tightening of exchanges’ volume-linked fee pricing structures for these firms is expected to deepen the industry’s woes.

Securities and Exchange Board of India had asked exchanges to scrap the practice of giving incentives to brokers based on the traded volumes from October 1 last year. While the move was aimed at boosting transparency, brokers said it has eroded profits-particularly of firms that thrived on high-volume trading and razor-thin margins.

“The removal of volume-based discounts has had a significant impact on the entire broking industry, resulting in a 10-15% revenue loss for mid-sized brokers, and an even higher percentage for brokers offering free delivery trades,” said Nilesh Sharma, executive director and president at Samco Securities. “Among all categories, ultra-discount brokers have seen the sharpest decline in trading volumes.”

Discount broking firms built their business on zero or low-cost brokerage fee models, subsidised by exchange rebates based on traded volumes. Now, in the absence of volume-based incentives, these companies are struggling. The earlier rebate-driven structure is said to be a key driver behind the explosive growth of India’s retail equity culture.

The number of investor accounts in India surged nearly fivefold-from 40 million in March 2020 to over 192.4 million by March 2025.

Sebi’s circular in July last year required all market infrastructure institutions (MIIs)-including stock exchanges, clearing corporations, and depositories-to adopt a uniform fee structure from October. Previously, brokers benefitted from tiered pricing based on their trading volumes, paying lower fees to exchanges while charging clients at standard slab rates, profiting from the spread. Under the new regime, these intermediaries must now levy identical charges on all brokers, effectively ending the pricing arbitrage and compressing broker margins. “The disruption has forced the industry to reassess pricing models and business strategies,” said the CEO of a leading discount broking firm, requesting anonymity. “While some brokers have already revised their fee structures to protect profitability, others are likely to follow.”From September, India’s largest discount broking firm Groww revised its brokerage fee from a lower of 0.05% or ₹20 per executed order to 0.1% or ₹20, whichever is lower, with a minimum charge of ₹2 per order. Angel One changed its fee structure from November 1 with a flat rate with a lower of ₹20 or 0.1% per executed order.According to Sharma of Samco Securities, the regulatory shift is hitting proprietary and arbitrage traders, including algorithmic desks, which have seen a sharp drop in activity. “The withdrawal of volume-based discounts has reduced returns for prop and arbitrage traders, leading to a major decline in trading volumes in this segment over the past six months,” Sharma added.