Absolutely no truth behind this and just another attempt by maybe competitor/s to slow us down. What they don’t understand is that because of what they are trying to spread, maybe their own clients land up on our website, like what they see, and get converted to clients with us. Like someone has said, “If people are trying to bring you down, it only means that you are above them”.
The most exciting regulatory action to happen for us as a business in the last one year was the “Enhanced supervision circular” and “Margin trading circular” from SEBI that this message talks about. Both of which went live from July 1st. Few important things from these two circulars are - One client funds can’t be lent to another for funding purchase of delivery stocks, client funds and broker funds have to be kept separate, if brokers are funding stock purchases it has to happen from their own money, overall funding not exceed 5 times networth, and maximum upto VAR+3 times ELM funding (maximum funding of around 2.5 times).
There are maybe around 500 active retail brokerages in India with around 200 having more than 500 clients. The largest revenue contribution for 90% of these brokers was from funding delivery purchases (we haven’t started any margin funding) - which is allow clients to buy stocks for more than what money they have in the account and charge interest for the additional money for as long as the client holds them. Funding was done through the broking entity when ideally should be done through a NBFC entity because there was no restriction on how much maximum you can fund. For example with a NBFC, you can fund only 50%. So if a client has Rs 50k, he can buy only upto Rs 1lk of stocks using funding - no limit as such if funded through broking entity. Earlier there was also no restriction on the kind of stocks you can fund through the broking entity. So many small brokers used to fund purchases of even penny stocks with a much higher interest cost. So brokers even though were not having too much trading volumes, but were okay because they could earn from this interest they were charging to fund stocks. The deal was even sweeter because there was no restriction on how much they can lend (no 5 times networth criteria, and I’d say >80% of brokers have less than 10 crores networth) and they could also maybe use one client funds lying idle to lend to another. SEBI with these two circulars cleaned up the entire system.
We never did any margin funding because the way it was being done didn’t seem right. Also didn’t make sense trying to compete with others to attract clients by offering higher leverage, it is one day bound to cause one of those shit hitting the fan incidents. Now that loophole has been fixed by SEBI and it is a level playing field, we are ready with our NBFC license to do this the correct way. If we now start offering margin funding services, brokers who were just surviving doing this and already in trouble with new regulations will maybe have to rethink their business model. Yes we have like every other big broking firm a prop desk, but we are always delta neutral. Market moves in either directions doesn’t really affect the performance of the prop desk. We haven’t requested any broking house for funding, we have 0 debt on books (maybe the only brokerage, not a single loan ever taken as a business from the start). Also the POA has limited powers. It can be used to debit shares from the demat only when the client has sold stocks. You would also get to know immediately from CDSL if any stock moves out. We have never delayed on fund withdrawal requests, we have never kept stocks in our pool accounts, never funded a purchase of a stock by charging interest. We are also today in terms of networth and profitability of the business among the top 20 brokerages in India. Maybe among the top 5 if comparison was done only in terms of retail operations. Largest in terms of new client additions per month, and below is the google trend graph of us versus the top 4 in the country over the last 5 years (Yes there are more people searching for Zerodha than any other broker in the country today).
Our alexa ranking is much higher than any of our competition. Much higher than the biggest brokerage in India
As a business we believe that products and customers should do all the talking. Bragging about how big we are is not what we like to do. But over the last 1 year or so, everytime market has moved up, some people suddenly seem to start circulating messages on whatsapp groups trying to hurt us by trying to portray us wrongly. Thought let me get on record and clarify this once for all.
