Interactive Brokers Discount Brokerage Market: Ken Research

1. New age investors preferring low priced DIY platforms supplemented with free industry level research

Traditional brokerage charges of 0.3-0.5% have prompted retail investors to shift to Flat
fee model; thereby preferring Discounted Brokerage Firms.
Exhaustive list of FAQs on website, Quick response time, above 99% SLA is preferred.
Withdrawal of Funds: Retail Investors prefer brokerage offering option of anytime.
withdrawal of funds. Recently, integrated by many discount brokerages within platforms.
Seek feedback of peer investors’ trading platforms to consider opening/switching broker.
Cost of Services: Prefer Free/Minimal charges on advisory services, stock reports,
additional industry Coverages etc.
Quality of Services: Investors tend to compare advisory/reports of different brokerages.
and prefer one’s with most accurate& reliable analysis.

2. Fear of Shrinking retail customer base prompting firms to diversify to non-core services

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FSB Retail Clients switching to Discount & Hybrid Brokerages

With growing traction from prices offered by discount brokerages, losing out on retail clients & FSBs converting to Hybrid, revenue from Full Service Brokerages has been following a downward trend.
In order to attract more customers, major FSBs are indulging in cross selling & focusing on non-core segments including distribution of mutual funds, insurance, loans etc.
Decreasing momentum of FPI Investments & IPOs (INR 1,236 Cr (FY’14) to INR 1,5750 Cr (FY’19)) also contributed to downturn for FSBs.
With similar brokerage pricing major players competing on research & advisory services, Trading Platforms provided & Third Party add ins.

3. Fostering Client Trust might take toll on Brokerage’s Revenues

Amendment: Brokerages can lend as much as their own capital.
Likely Impact on Capital Market Trading Activity: Intraday trading forms a major chunk of capital market trading and amendment could impact the ‘Level of Margins’ being availed by clients.
Impact on Brokerage Firms: A welcomed move for overall development of industry in long term yet likely to take toll on brokerage revenues for firms offering higher margins as their USP.
New Guideline: Collection of Information of Client Securities from all trades and matching it with securities.
Impact on Brokerage Firms: Additional carefulness in reporting fund/securities balance to prevent another Karvy like situation

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