Sebi asks MIIs to charge flat fee from all members, not give discounts based on turnover volume


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In a move that deals a major blow to discount broking, the regulator has asked stock exchanges and other market infrastructure institutions (MIIs) to charge a flat fee from all their members and not give discounts based on trading volume or activity.

This information was given by the Securities and Exchange Board of India (SEBI) through a circular issued on July 1. These provisions will come into effect from October 1, 2024.

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This will have a huge impact on the revenue of brokerages, especially discount brokerages, which earn a large part of their revenue from the paybacks given by the exchanges for the volumes generated. As market insiders told Moneycontrol, discount brokers earn 15-30 percent of their income from this and deep discount brokers earn 50-75 percent of their topline from this.

Moneycontrol Exclusive had reported about the regulator’s intention to implement this measure in October 2023. More recently, on June 14, we had reported that the measure would be implemented soon.

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In the latest circular, SEBI has clarified its intent behind such a measure: “Market Infrastructure Institutions (MIIs), being public utility institutions act as first level regulators and are entrusted with the responsibility to provide equal, unrestricted, transparent and fair access to all market participants.”

But, on investigation, the regulator found that MII has a slab-wise charge structure for its members like stock brokers, who then pass on these charges to the end customer (investors). But, as a market insider told Moneycontrol, while exchanges give brokers a discount on transaction charges based on the volumes they bring in, brokers charge the investor the full exchange transaction fee. Brokers earn a major part of their revenue from these spreads.

As mentioned in the circular, investors have to pay the fee on a daily basis, while brokers pay it on a monthly basis in aggregate. This has resulted in a situation where the fees collected by members (stock brokers) from the end clients (investors) are higher than the month-end fees paid to MIIs such as stock exchanges (due to discounts given for volume generated).

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“This may also result in the end customer receiving incorrect or misleading information about the charges levied by MII,” the circular said.

Taking these into account, MIIs have been asked to follow the following principles while fixing fees for their members:

1. MII charges charged to the end client should be as per the label, i.e. if some MII charges are levied on the end client by the members (i.e. stock broker, depository participant, clearing member), it should be ensured by the MII that they receive the same amount.

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2. The charge structure of MII should be uniform for all members and not slab-wise i.e. dependent on the volume/activity of the members.

3. Firstly, the new charge structure formulated by MIIs should give due consideration to the existing per unit charges levied by MIIs, so that the end customers can pass on the benefit of the reduction in charges.


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