exchange transaction charges: Brokers make hay with ‘grey area’ in exchange transaction charges

While brokers collect this fee on behalf of the exchanges from clients, sources said many firms have been retaining excess of these amounts that have not been transferred to the bourses. Though there are no rules that state brokers must return the excess amount collected from clients, they may be treading a regulatory twilight zone.

The National Stock Exchange levies this transaction charge in the range of ₹3.20 to ₹3.45 for share trades worth ₹1 lakh. In the futures segment, the bourse charges ₹1.85 to ₹2 for trades worth ₹1 lakh. In the case of options, this fee is between ₹33 and ₹53 per ₹1 lakh of the premium value.

While the broking firm’s monthly turnover value determines the fee, these are based on slabs. The higher the broker’s monthly turnover, the lower is the fee they can collect and vice-versa. BSE collects a flat transaction charge, according to market sources.

However, most brokers collect the highest fee irrespective of the turnover value. This means these firms take ₹3.45 per lakh from their clients for cash market transactions, ₹2 per lakh for trading in futures, and ₹53 per lakh of premium value for options trading. They hand over the fee as per the turnover to the exchange and keep the rest.

NSE did not respond to ET’s queries.

“It’s a turnover-based charge,” said the CEO of a broking firm on condition of anonymity. “Almost all brokers charge a flat fee at the higher end of the slab and retain the benefit of the higher volumes and lower tax.”The gains from retaining this exchange transaction fee are sizeable and contributed to as much as a quarter of some brokers’ earnings last year, said sources.

For instance, NSE’s transaction charge for a broker, whose turnover falls in the ₹15,000 crore slab in the cash market segment is ₹3.20 per lakh or 0.0032%. If brokers collect 0.00345% from the clients, a broker can earn a profit of ₹3.75 crore in this case.

For futures trading, NSE levies a transaction charge of ₹1.85 per lakh for broking firms with a monthly traded value above ₹15,000 crore, ₹1.9 per lakh for a monthly turnover of ₹7,500 crore-15,000 crore, ₹1.95 per lakh for the turnover between ₹2,500-7,500 crore and ₹2 for a monthly turnover of upto ₹2,500 crore.

Exchange charges for options trading is flat at ₹ 2,500 for a monthly turnover of up to ₹3 crore of premium value and between ₹33 and ₹53 per lakh premium value based on various turnover slabs.

“There is a grey area as far as the legality of the collection is concerned,” said the CEO of another broking firm requesting not to be named. “This is one of the income sources in an environment where brokers hardly earn any brokerage due to stiff competition, whereas the cost of compliance and technology skyrocketed in the last few years.”

NSE saw an average daily cash market turnover of ₹50,000 crore in 2023, with ₹10 lakh crore monthly. NSE’s average daily turnover in the future segment in 2023 was ₹1.08 lakh crore and ₹208 lakh crore in the options segment.