STT Hike, SEBI Curbs Weigh On Broking Industry: Crisil Ratings

New Delhi, Feb 12 (KNN) India’s broking industry is bracing for potential headwinds following the proposed increase in securities transaction tax (STT) on derivatives in the Union Budget 2026–27, even as recent regulatory measures by the Securities and Exchange Board of India (SEBI) have already weighed on trading activity.

Measures aimed at curbing speculation and protecting retail investors have led to lower market volumes. Average daily turnover (ADTO) fell around 25 per cent in the second half of the previous fiscal. Though volumes have partly recovered, they remain below earlier peaks. Industry revenues declined 6 per cent year-on-year in the first half of fiscal 2026.

Diversification Proves Crucial

Crisil Ratings analysed the performance of 25 broking firms across fiscal 2025 and the first half of fiscal 2026. 

The firms were grouped into three categories: traditional brokerages that derive over half their revenue from transaction broking and trading; diversified players earning less than half their revenue from such activities; and proprietary trading firms. 

Non-broking income included fees from distribution, wealth management and investment banking, as well as interest income from margin trading facilities (MTF).

According to Malvika Bhotika, Director, Crisil Ratings, "Our analysis of 25 players engaged in the broking businesss hows that entities with diversified revenue streams have typically navigated market fluctuations adeptly, while entities where transaction broking fees or proprietary trading business constitutes the predominant share of revenues, have faced decline in revenue during such periods."

Diversified players, which derive nearly two-thirds of their revenue from non-broking and non-trading activities, reported the least impact on earnings, reflecting stronger resilience to market swings.

Traditional and Proprietary Firms Under Strain

Traditional brokerage firms saw revenue fall around 15 per cent in the second half of fiscal 2025 compared with the first half, largely due to lower market activity and changes in customer charges. Many firms revised brokerage rates and introduced fees for services that were previously offered free. 

While a stronger focus on margin trading facilities increased the segment’s revenue share by about 400 basis points in fiscal 2025, overall revenues in the first half of fiscal 2026 remained below year-ago levels.

Proprietary trading firms experienced the sharpest impact. Prashant Mane, Associate Director, Crisil Ratings, said, "With the regulatory measure of reducing weekly expiry products resulting in fewer arbitrage opportunities, proprietary players saw revenue drop by around 25 per cent during the second half of fiscal 2025 over the first half, with a slight improvement in the first half of fiscal 2026 owing to some stability in market volume.” 

“Going ahead, the proposed hike in STT could have a higher impact on proprietary traders, including high-frequency traders and arbitrageurs, who account for around 60 per cent of the market volume," he added.

Outlook

The findings highlight the growing importance of revenue diversification. While higher interest income from margin trading has offered some support, expanding non-trading revenue streams is becoming increasingly critical. 

Most broking firms have begun efforts to diversify, but their ability to reshape revenue models and manage regulatory or market-driven volatility will remain a key factor to watch.

(KNN Bureau)