IIFL considers eliminating trading commission: report

India's largest brokerage is looking at a zero-commission trading model, a Bloomberg report says

Leading brokerage IIFL Holdings is considering cutting trading commissions to zero to attract customers, Bloomberg reported Thursday. 

 

Already, IIFL charges the lowest commission among the 9,000-odd brokerages in the country, a step it took last month to boost market share as the key indices rallied on the backs of optimism over promised reforms and a continuing wave of liquidity. 

 

The benchmark BSE Sensex has already rallied 32% this year, gaining as much as 1,000 points in a 12-session run through November 05, a day it breached the 28,000 mark for the first time. 

 

The Mumbai-based IIFL reduced its flat fee to Rs.9.99 per order on October 21, according to the BSE Brokers Forum. Other brokerages have followed suit as retail investors have shied away from equity markets owing to volatility in the aftermath of the financial crisis of 2008. 

 

Average trading commissions in Asia’s fourth-largest stock market have dropped by at least 50% since 2010, according to data compiled by the Association of National Exchanges Members of India.

 

“We are ready to cut further and go down to zero if needed,” Nirmal Jain, the chairman of IIFL, India’s largest listed brokerage by revenue, was quoted as saying in the Bloomberg report. “This could hurt our earnings for a few quarters, but our portfolio of services will be a hook to bring customers and market share.”

 

While the reduction in transaction costs may hurt earnings brokerages are likely to augment their revenue by selling other equity-related products and other investments IIFL plans to make money by selling its customers additional products, including mutual funds and gold coins.

 

Interestingly, listed brokerage houses have seen huge gains in their stock prices. IIFL shares have climbed 177% this year, while Motilal Oswal Financial Services Ltd rallied 140% and Edelweiss Financial Services Ltd gained 87%.