Regulatory Shake-Up Hits Discount Brokerages Hard

Discount brokerages like Zerodha and Groww face significant impacts due to new regulations on derivatives trading. Up to 80% of their revenue derives from such trades. Regulatory changes, including modified transaction charge structures, challenge their profitability. Mitigation strategies are hindered by intense competition.

Discount brokerages such as Zerodha and Groww are poised to bear the brunt of recent regulatory changes aimed at curbing investors' play in derivatives, according to domestic rating agency Crisil.

Subha Sri Narayanan, the agency's director, indicated that up to 80% of a discount broker's revenue originates from derivatives, compared to less than a third for full-service brokers. This makes discount brokerages particularly vulnerable to the evolving regulations.

The new regulations introduced by Sebi alter the transaction charge landscape by applying uniform charges across all trade categories, further straining discount brokerages' financial performance amidst fierce competition.

(With inputs from agencies.)