SEBI asks Exchanges to charge all members uniformly, to not offer discounts based on turnover volume

Learn Team
July 4, 2024

Securities and Exchange Board of India (SEBI) has come up with a circular aimed to solve many problems with one shot. SEBI through this circular aims to slow the pace of derivative trading, providing equal, unrestricted, transparent and fair access to all market participants. The market regulator has directed stock exchanges and other market infrastructure institutions (MIIs) to implement a uniform and equal charge structure for all members, prohibiting discounts based on trading volumes or activity. This change will significantly hit big broker revenue, who earns substantial portion of their income from paybacks provided by exchanges for the volumes they generate.

The regulator instructed MIIs to ensure that any charges recovered from the end client are 'True to Label'. True of charge means, if certain MII charge (Stock exchanges, Clearing Corporations and Depositories) is levied on the end client by members (i.e. stock brokers, depository participants, clearing members), it should be ensured by MIIs that the same amount is received by them.

As per money control findings, brokers who generate higher trading volume per month, NSE charges only Rs 30 per lakh worth of trade. Whereas, brokers in turn charges Rs 50 per lakh from the customers. The top brokers who qualifies by providing volumes, effectively nets a margin of Rs 20 per lakh of transaction because of the rebates. Large players using these pass back, are playing on uneven playing field and making it harder for newer entrants to compete even with better products or innovations. Small firms argue that earlier there was an incentive for large brokers to promote more trading, as more volumes would have meant better profitability, which will not be the case anymore.

As per circular by SEBI, it has been decided that the MIIs would comply with following additional principles while designing the processes for charges levied:

The MII charges which are to be recovered from the end client should be True to Label i.e. if certain MII charge is levied on the end client by members (i.e. stock brokers, depository participants, clearing members), it should be ensured by MIIs that the same amount is received by them.
The charge structure of the MII should be uniform and equal for all its members instead of slab-wise viz. dependent on volume/activity of members.
To begin with, the new charge structure designed by MIIs should give due consideration to the existing per unit charges realized by MIIs so that the end clients are benefitted with the reduction of charges.

The price of listed stock brokers like Angel One, Geojit Fin Services, Motilal Oswal Financial Services, SMC Global Securities and 5paisa Capital have tumbled 5-8% in past 3-4 days.