To ensure a level-playing field for big and smaller players in the broking industry, the Securities and Exchange Board of India (Sebi) has said charges levied by market infrastructure institutions (MIIs) on members should be uniform and equal irrespective of the volume generated.
The move will likely impact large broking firms and discount brokers, who effectively end up paying lower charges to MIIs due to the high volumes they generate, the CEO of a broking house said.
It is also aimed at curbing the surge in derivatives trading as there will be no incremental benefit for members for generating high volumes. Futures & Options trades contribute to a significant chunk of the overall market trade.
In a circular on Monday, the regulator has directed MIIs, which include exchanges, clearing corporations and depositories, to redesign the existing charge structure and associated processes. This will come into effect from October 1, the circular said.
Currently, most MIIs follow volume-based, slab-wise charge structure, wherein the 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 monthly basis,” Sebi said.
The markets regulator highlighted that the existing process can result in a situation wherein the aggregated charges collected by the members from the end clients are higher than the end of month charges paid to the MII due to the slab benefit.
“This standardises the fees that are recovered from intermediaries through clients for MII-related charges. Earlier, slab-based discounts were given based on volumes done by the intermediary” said Dhiraj Relli, MD and CEO of HDFC Securities.
Relli said few brokers may have been charging customers a flat levy and retaining any discount because of high turnover. He said Sebi’s move reduces ambiguity on MII-related charges recovered from customers.
The regulator said the matter was deliberated with the Secondary Market Advisory Committee. The committee observed that in addition to impacting transparency, the existing slab-wise charge structure can also create a hindrance for the MIIs in ensuring equal and fair access to all market participants.
It said the new charge structure should give due consideration to the existing per unit charges realised by MIIs so that the end clients benefit with a reduction in charges.
