New UPI fee raises broker concerns, Sebi to examine

Synopsis

Sebi is set to investigate the issues raised by discount brokers regarding new UPI charges that will impact large fund transfers starting October fifteenth. Brokers are particularly concerned that these additional costs may heavily burden them, as trades are not insured after the transfers are made. Additionally, the complexity of quarterly settlements could further escalate their expenses.

Mumbai: The Securities and Exchange Board of India (Sebi) will examine concerns raised by discount brokers over the new merchant discount rate for big fund transfers through UPI (unified payments interface), its chief Tuhin Kanta Pandey said Thursday. "I think there are some important issues there. We will certainly look into it and see how we can ease them," Pandey said on the sidelines of an event.

Under the new framework, capital market transactions, including payments to stockbrokers, mutual funds, investment advisors and dealers, will attract an MDR of 0.02%, capped at ₹300 per transaction, from October 15.

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Stockbrokers operating on wafer-thin margins have approached Sebi raising concerns the charge could disproportionately increase their costs since money transferred by a client to a broking account does not necessarily result in a trade.

"The problem with broking is that there is no guarantee that money transferred to a broker will actually result in a transaction. As brokers, we can't force a customer to trade after transferring money. And if we can't pass the UPI charge on to the customer, there is essentially no limit to the cost a customer can impose on a broker without generating any revenue," Nithin Kamath, founder of discount broking platform Zerodha, wrote in a post on his social media handle.

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"What makes this even more challenging is quarterly settlement. This is a Sebi regulation that requires brokers to send unused funds back to clients every month or quarter. Most customers then transfer these funds back to their broking accounts, with more than half of these transfers happening through UPI. So, regulation essentially forces this movement of money every month or quarter, and the broker could end up bearing the cost when money comes back, without any incremental benefit or revenue," Kamath said.

In a separate development, the Sebi chairman said the regulator has not received any proposal from the National Stock Exchange (NSE) seeking regulatory approval to trade on its own platform after getting listed. "No, there is no such letter and there is no such requirement," Pandey said.

The NSE stock will be listed on its rival, the Bombay Stock Exchange. Unlike the Australian bourse which listed its stock on its own platform in 1998, India allows only cross-listing, and the BSE stock is listed on the NSE.

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