Co-founders of brokerage firm Zerodha, Nitin Kamath and his brother Nikhil Kamath. ()
Zerodha's co-founders Nitin Kamath and his brother Nikhil Kamath have expressed concerns about the startup ecosystem. Kamath Brothers said that excessive regulation can stunt growth and have an adverse impact on the startup ecosystem in the long run.
In a podcast on CNBC-TV18, Kamath and his brother said – We are under regulators over whom we neither have any influence nor we have access to their decisions, but with their decisions they can reduce our revenue by 50% in a day. Can reduce. They can also close our business forever.
Giving an example, Kamath said that in a class of 50 children, the teacher makes rules and scolds and reprimands the children as per his wish. Can innovation come from children who are already living in fear, probably not. However, Nikhil Kamath also said that Indian regulators have improved the system a lot over time.
Nitin Kamath said – Running a broking firm is a difficult task. Nitin Kamath said that Zerodha's revenue is expected to reduce due to the new rules implemented by the Securities Exchange Board of India (SEBI).
He cited true-to-label regulation as an example of circular regulation that could harm company profits. Kamath said running a broking firm is a tough job. Despite all these things, Kamath remains quite optimistic for the future.
Kamath brothers want to convert Zerodha into a bank Kamath Brothers want to convert Zerodha into a bank. He expressed sadness over the fact that despite all the efforts made in the last several years, the banking license has not been received.
Nitin Kamath had also spoken on this circular 3 months ago 3 months ago Nitin Kamath had written on social media platform X – SEBI has recently issued a circular. It said that market infrastructure institutions (MIIs) like stock exchanges will have to levy the charges 'as per the label' from October 2, 2024.
This circular will not only impact brokers but also traders and investors. In all likelihood, the zero brokerage structure will have to be abandoned or brokerage will have to be increased for F&O trades. Brokers across the industry will also have to change their prices.
Why did SEBI issue new guidelines?
- SEBI had issued new guidelines to ensure fairness and transparency in the fees charged by MIIs. This guideline has now been implemented. Stock exchanges, clearing corporations and depositories are called MIIs.
- Earlier, the process followed was that the stock exchange used to charge transaction fees on the basis of the total turnover made by the stock broker. Brokers used to collect charges from customers on daily basis while they used to pay charges to the stock exchange on monthly basis.
- Earlier stock exchanges used to follow volume based slab wise charge structure. That is, if the turnover of the broker is high then he comes in such a slab of the stock exchange in which the charges are less. Whereas if the turnover of the broker is less then he had to pay more charges.
- SEBI said that due to the slab benefit, brokers can charge more from their clients than what they pay to MIIs. This may result in misleading information reaching the end client regarding the actual charges levied by the MIIs.
- Slab-wise charge structure may affect transparency. Creates an unequal playing field for brokers of different sizes. SEBI wants that the charges that brokers charge their clients should be equal to the charges that MIIs receive from brokers.
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