SEBI Order On MII Shift To Benefit Market Players In The Long Run
SEBI encouraged these new fee structures to reduce costs for investors and traders, potentially resulting in lower fees overall.
The new SEBI guidelines on doing away with the volume-based slab-wise fees to brokers would be beneficial in the long-term as the fee charged by the exchanges should be exactly what is paid to them by the brokers, according to Deepak Shenoy, founder of Capital Mind.
The markets regulator found that some exchanges use a volume-based fee structure, resulting in members collecting more from clients than they pay to the exchanges. This leads to misleading disclosures about actual charges. SEBI now requires them to follow specific principles when setting fees for members like stockbrokers and depository participants, ensuring transparency for end clients.
SEBI has said in its guidelines that the charges billed to end clients must be “true to label” and should accurately reflect what intermediaries receive, without hidden fees or discrepancies.
Shenoy, speaking at the 2024 APMI conference with NDTV Profit, mentioned that initially, rebates were given separately to brokers, but SEBI later prohibited this. The practice then shifted to offering volume-based discounts, which often weren't passed on to customers, becoming a significant part of brokerage firms' ancillary income.
Recently, SEBI mandated that fees charged should align precisely with what NSE receives. Consequently, NSE is now required to apply a standardised fee uniformly across all members, eliminating advantages based on trading volume brought in by brokers, he said.
Additionally, SEBI mandated a uniform flat fee structure for all members of Market Infrastructure Institutions (MIIs), replacing varied slab-wise fees based on volume or activity. This change aims to eliminate advantages based on size or activity level among members.
Further, SEBI encouraged these new fee structures to reduce costs for investors and traders, potentially resulting in lower fees overall.
Shenoy said that while brokerage fees might adjust slightly, he emphasised the competitive nature of the industry, allowing for reasonable margin to be passed on to customers. This reduction in fees ultimately supports customer interest and contributes to the growth of the PMS business.
