Zerodha, a prominent brokerage firm celebrating its thirteenth year in the industry, has revealed in a recent blog post that ten per cent of its new business comes from its referral program, as well as its partner program. However, Zerodha acknowledges a potential business risk posed by the Securities and Exchange Board of India (SEBI).

SEBI proposed restrictions on the association of brokers with finfluencers who function as advisors or analysts. The regulatory body’s concern centres around the potential for these influencers to lure their followers into purchasing products, services, or securities without disclosing compensation arrangements with platforms or producers.

In response, Zerodha expressed support for the regulatory intent behind these proposals, emphasizing that individuals acting as advisors or analysts without SEBI registration should not be allowed to collect fees directly from customers or indirectly through brokerage sharing.

The blog post also outlined the business risk associated with these potential regulations, stating, “The risk is that any regulation around this could also result in us having to stop our referral program, which, along with our partner program, gives us ~10% of our new business.”

Additionally, Zerodha identified other business risks, including revenue concentration from the derivatives segment and challenges related to the Application Supported by Blocked Amount (ASBA)-like facility set to be available in the secondary market by January 2024.

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Regarding revenue concentration, the post noted that any changes in market conditions or the emergence of new competitors with superior products could impact retail trading activity in derivatives at Zerodha. However, the company expressed confidence in its ability to adapt due to its net worth, efficient operations, customer trust, and business agility.

Concerning the ASBA-like facility using UPI mandates for stock purchases, Zerodha acknowledged the potential technical challenges involved in implementing this feature. It also highlighted the business risk associated with changes in how brokerage fees, DP charges, and penalties are collected when funds move directly from customers’ bank accounts to the clearing corporation.

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