Exchanges often charge brokers lower fees when trading volumes are high, contributing to a surge in trading in sectors such as derivatives.
Asking exchanges to stop this practice is part of broader measures being discussed by the Securities and Exchange Commission of India to curb overheating in India’s derivatives market.
Sebi has directed the Market Infrastructure Institute (MII) to ensure that rates recovered from end customers are “true to name”. A circular issued by the market regulator on Monday directed MIIs to ensure that the fees they receive are at par with the fees charged to their members, including stockbrokers, depository participants and clearing members.
The fees charged by MII to its customers are ultimately recovered from investors. The move came after Sebi notified that the total charges collected by members from end customers (due to slab benefits) are higher than the month-end charges paid to MII.” It has been observed that some MIIs that charge their members follow a volume-based fee structure, where these fees are charged on behalf of the various services provided by the MII, while the members typically recover these fees from the end customer. “The total charges collected by the members from the end customers are higher than at the end of the month,” the Sebi circular said, adding that “this leads to inaccuracies or inaccuracies in the charges being charged by the MIIs to the end customers. “Misleading disclosures may also occur,” he added.
The issue was considered by Sebi’s Secondary Market Advisory Committee (SMAC) and it was observed that the current practice was affecting transparency. Moreover, it was observed that the existing slab-based fee structure of MIIs was affecting the level playing field among members due to size differences, which could hamper MIIs’ ability to ensure equal and fair access to all market participants.
The new rules mandate MIIs to adhere to the latest guidelines. While designing the process for charging members, MIIs must now ensure that the amounts recovered from end customers are ‘true to the label’.
The charge structure of an MII should be uniform and identical for all members, not in a slab fashion. It varies depending on the size/activity of the members.
The new rate structure designed by MII should properly take into account the existing per-unit rates realized by MII, allowing end customers to benefit from rate savings.
MII must now take necessary steps to establish the necessary infrastructure and systems for implementation of the circular.
This notice is effective October 1, 2024.
