Posted on Thursday, August 14, 2014
Modified on Tuesday, July 14, 2015
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Brokers in India stock market charges 'Transaction/Turnover Charges' along with the brokerage and other fees.
Transaction Charge = Exchange Turnover Charges + Clearing Charges
Stock Brokers are registered member of stock exchanges. Stock Exchanges in India offers 4 type of memberships; trading member, Trading Cum Self Clearing Member, Trading Cum Clearing Member and Professional Clearing Member.
(Note: The definition of the membership types is described in the later section of the this article)
All banks offering 3-in-1 accounts are 'Trading Cum Clearing Member' and clear their own trades.
Most brokers today prefer to be just 'Trading Member' and clear trades through either a trading cum clearing or a professional clearing member. Those brokers (Trading Member) pay clearing charge to the 'Professional Clearing Members' to clear the trades.
The clearing charge varies from broker to broker and usually not disclosed to the customers.
i.e. Discount broker Zerodha is not clearing members at the exchange, and uses a third party (ILFS) for clearing services.
BSE, NSE and MCX-SX; the popular stock exchanges in India charges a transaction (or turnover) fee for trade executed with them. Each exchange has its own way to calculate the turnover fee.
Some of the factors by which this fee varies are:
At BSE; the turnover fee is charged by the type of order i.e. passive & active orders.
Below table shows the fee charged by BSE (Bombay Stock Exchange):
|Passive Orders||Active Orders|
|Equity Segment Transaction Fees||0.00225% (Rs 2.25 per 1 Lakh)||0.00325% (Rs 3.25 per 1 Lakh)|
|Derivatives Segment (Futures) Transaction Fees||Nil||0.0005% (Rs.50 per Crore of Trade Value)|
|Derivatives Segment (Options) Transaction Fees||Nil||0.0005% (Rs.50 per crore of Premium Value)|
Transaction charges are applicable for all segments including:
Note that the rate of transaction charge differs by the exchange and the trading segment.
Each exchange has a different way to calculate and charge the transaction fee. Exchanges also compete with each other by keeping the transaction fee low to attract more traders to trade on to their exchanges.
Most exchange also reduces the transaction fees for a broker when the daily volume increase up to a limit i.e. Rs 25,000 crore turnover daily.
Each broker in India charge different transaction fee. Below are some of the reasons why it differs from broker to broker:
There is no regulation or limit on transaction charge being charged by the broker. But there is a new common contract note regulation from SEBI that says that all charges should be at actual. This regulation effected from August 1st 2014 and will required brokers to provide the detail of the transaction charges in contract note.
Note that brokers still provide detail about 'Transaction Charge' and do not share separate 'Exchange Turnover Charge' and 'Clearing Charge'.
With traditional brokerages, transaction charges usually seem like a very small component and nobody notices, it looks magnified when trading with discount brokers like Zerodha, RKSV or TSO.
But in case of discount broker; the transaction charges looks significant.
Buy 1 lot (50) of NIFTY Future at Rs 7800 at NSE.
Total Transaction: 50x7800 = Rs 390000
ICICI Direct Brokerage = 390000 * 0.05% = Rs 195
ICICI Direct Transaction Charge = 390000 * 0.00185% = Rs 7.20
Zerodha or RKSV Brokerage = Rs 20
Zerodha or RKSV Transaction Charge = 390000*0.0021%= Rs 8.20
No, the customers cannot bargain about transaction charge. The transaction / turnover fee is fixed by the broker. The broker informs the customers about these charges at the time of account opening and whenever they are charged.
Yes there is a higher charge that the transaction charges will reduced in future. The exchange turnover charge is expected to reduce as trade volume increase in future.
Type of membership brokers have with exchange:
This category of membership entitles a member to execute trades on his own account as well as on account of his clients but, clearing and settlement of trades executed through the Trading Member would have to be done through a Trading-cum Clearing Member or Professional Clearing Member of the Exchange.
This category of membership entitles a member to execute trades and to clear and settle the trades executed on his own account as well as on account of his clients.
This category of membership entitles a member to execute trades on his own account as well as on account of his clients and to clear and settle trades executed by themselves as well as by other trading members who choose to use clearing services of the member.
This category of membership entitles a member to clear and settle trades of such members of the Exchange who choose to clear and settle their trades through this member.
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