This was a great session. My takeaways:
How Indian broking industry is different from that of US
- Every quarter, Indian brokers are required to refund the float. US brokers are able to invest the float, keep it, and profit from spreads.
- Unlike brokers in the US, depositories own stocks in India. US brokers are able to lend the stocks and make money.
- Payment for the order flow – US brokers can profit from the sale of the trade data.
This highlights how fundamentally different the Indian brokerage industry’s business model is and how difficult it is to achieve REAL zero fees here.
Other services that brokers provide
- Research
- Wealth management
- Mutual fund and insurance distribution
- ETFs
- Custom products – Robo advisor
More on US Broking industry
Charles Schwab is more like a mini bank and their major revenue come from the spreads. When they eliminated the transaction cost, they were able to shake up the industry and acquire TD Ameritrade, which was highly dependent on the transaction fees.
https://www.youtube.com/embed/oac09WPTrEA
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