SEBI Urges MIIs To Levy Uniform Charges On Members, Discount Brokers To Feel Impact On Revenue

Notably, exchanges levy a lower fee on brokers if they manage to generate high volumes. This has led to an increase in trading across segments such as derivatives

Discount broking firms receive a major portion of their revenue from the paybacks that exchanges offer for the volumes they generate

The Securities and Exchange Board of India (SEBI) on Monday said that market infrastructure institutions (MIIs) such as stock exchanges, depositories, clearing corporations, etc should impose uniform charges. The markets regulator said that these charges shouldn’t vary based on volumes.

Issuing a circular, the regulator said that the MIIs should ensure that these charges recovered from end clients should be ‘true to the label’. “Upon examination of existing processes related to charges levied by MIIs on their members (i.e. stock brokers, depository participants, clearing members), it was observed that a volume based slab-wise charge structure is followed by some MIIs. These charges are levied in lieu of various services offered by MIIs and are recovered from the end clients by members. It has also been observed that members generally recover such charges from the end clients on a daily basis whereas MIIs receive aggregate charges from the members on a monthly basis. The aforesaid process can result in a situation wherein the aggregated charges collected by the members from the end clients is higher than the end of month,” the circular noted.

The circular said it will come into effect from October 1, 2024, reported The Economic Times. Notably, exchanges levy a lower fee on brokers if they manage to generate high volumes. This has led to an increase in trading across segments such as derivatives.

The regulator argued that the aggregate charges collected by the members from the end clients remained higher than the end-of-month charges paid to the MII.

This decision is expected to have a detrimental effect on the discount broking firms and their revenues as a major portion of their revenue comes from the paybacks that exchanges offer for the volumes they generate.

As such, the norms now state that MIIs should design a new charge structure that is uniform and equal for all the members, instead of basing it on slabs dependent on volume/activity of members.