Angel One Stock Drops 10% After SEBI's Market Intermediary Charge Mechanism Revision

Shares of Angel One dropped by as much as 10% on July 2, following the Securities and Exchange Board of India's (SEBI) new circular that revised the market intermediary charge mechanism.

At 09:59 AM IST, Angel One share price were trading at ₹2,394.85 apiece on the NSE. The news also triggered a significant increase in trading volumes, with 18 lakh shares changing hands on the exchanges so far, substantially higher than the one-month daily traded average of five lakh shares. 

SEBI's new circular stated that Market Infrastructure Institutions (MIIs), such as stock exchanges and clearing corporations, should not offer discounts based on turnovers. Currently, MIIs like exchanges and depositories levy transaction charges and depository fees on brokers using a slab-wise structure. Brokers, in turn, charge their customers using a similar slab-wise structure.

However, the timing of these charges differs, as brokers typically recover these charges from end clients on a daily basis, while MIIs receive the aggregate charges from members on a monthly basis. As a result, the total charges collected by brokers from end clients are higher than the charges paid to MIIs at the end of the month due to the slab benefit.

Accordingly, discount brokers currently earn between 15% and 30% of their revenue through transaction charge discounts, while for deep discount brokers, this figure increases to 50% to 70%.

However, the revised circular states that the MII charges to be recovered from the end client should be “true to label.” This means that if any MII charge is levied on the end client by members (such as stockbrokers, depository participants, or clearing members), MIIs must ensure they receive the same amount.

According to the circular, the charge structure of MIIs should be uniform and equal for all members, rather than the current slab-wise structure that depends on the volume or activity of the members.

Based on these changes, Motilal Oswal Financial Services believes that discount brokers' revenues may be adversely affected, as they derive a significant portion of their income from such charges due to their large base of retail customers and consequently lower volume/ticket size. For instance, Angel One earned approximately ₹400 crore from these charges in FY24.

Despite this, the brokerage also believes that the impact of these charges can be mitigated by increasing brokerage rates.