SEBI to Examine Brokers’ Concerns Over New UPI Charges Ahead of October Rollout

The Securities and Exchange Board of India will examine concerns raised by stockbrokers and mutual funds over the new merchant discount rate on UPI payments, weeks before the charges are due to take effect. 

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SEBI Chairman Tuhin Kanta Pandey indicated on Thursday that the regulator would look into the issues flagged by the industry and consider whether they can be addressed. 

At the centre of the discussion is the way UPI transfers into trading accounts will be treated. 

From October 15, UPI transactions falling under the capital-market category including payments involving stockbrokers, securities and mutual funds are set to attract a merchant discount rate of 0.02%. The charge will be capped at ₹300 for each transaction. 

For brokers, the concern begins before a trade is even placed. 

A client may transfer money into a trading account but decide not to use it. The UPI transaction could still attract MDR even though no trade has taken place and the broker has earned no brokerage from that money. 

There is another complication. Under SEBI’s quarterly settlement requirements, unused client funds have to be returned. If the same money is later transferred back into the trading account, another UPI transaction takes place. Brokers are concerned that this could lead to costs being incurred more than once without a corresponding transaction generating revenue. 

The structure of the charge has consequently become part of the industry’s discussions with the regulator. 

Broker associations have approached SEBI over the implementation of the new framework and are seeking clarity on whether transfers into broking accounts could be treated differently, particularly because of the regulatory requirements governing the settlement of client funds. 

The industry has also raised questions over applying a percentage-based charge to such transfers. Under that structure, the MDR rises with the amount being moved even in cases where the transfer does not eventually result in a trade. 

Broker associations have therefore sought a flat-fee approach instead of a charge linked to the value of the transaction. 

For now, the framework is scheduled to come into force on October 15. SEBI has said it will examine the concerns placed before it, but the Moneycontrol report does not indicate that any change to the proposed capital-market MDR structure has yet been decided.