UPI MDR on Trading Accounts: SEBI to Examine Impact of New Rates on Securities, Mutual Funds
SEBI will examine broker concerns over a new UPI charge on capital-market payments, including transfers to trading accounts.
By Pranjal Gupta
New Delhi, September 17: Markets regulator SEBI (Securities and Exchange Board of India) will examine concerns raised by stockbrokers and mutual funds over a new charge on UPI transactions in the capital-market sector, its chairman Tuhin Kanta Pandey said on Thursday.
“There are some important issues there. We will certainly look into it and see how we can ease them,” Pandey told reporters on the sidelines of an event in Mumbai, said media reports.
The issue centres on the introduction of a Merchant Discount Rate (MDR) of 0.02% on certain UPI payments linked to capital-market transactions. The charge will apply to payments made to stockbrokers and for securities and mutual funds from October 15.
The new MDR will be capped at Rs 300 per transaction.
Why Brokers are Concerned
Stockbrokers say the charge could increase their costs even when a UPI payment does not lead to any trade or brokerage income, a report by MoneyControl said.
For example, a client may transfer Rs 1 lakh to a trading account but decide not to buy or sell any security. The broker would still have to bear the UPI charge, despite earning no brokerage from the transfer.
Zerodha co-founder Nithin Kamath has highlighted this concern, arguing that the proposed system could make fund transfers costly for brokers without creating any corresponding revenue.
The issue becomes more significant because of SEBI's rules on quarterly settlement of client funds. Under these rules, brokers have to return unused client money at regular intervals. A client may then transfer the money back into the trading account when they want to trade.
This could result in multiple UPI transfers - and therefore multiple MDR charges - even when the client does not actually execute a trade.
Brokers Seek Lower, Flat Charges
Kamath has suggested that UPI payments related to broking should carry a much lower charge, with a cap of around Rs 5-10 per transaction, instead of the proposed Rs 300 ceiling.
The argument is that a percentage-based charge can become significant for large transfers. Yet the broker's revenue does not necessarily increase simply because a client moves more money into a trading account.
Broker associations have also taken up the matter with SEBI and sought clarity on how the new MDR will apply to fund transfers into broking accounts.
According to a Moneycontrol report, the industry has discussed whether such transfers could be treated differently because brokers must comply with regulatory requirements governing client funds.
Brokers are also pushing for a flat-fee structure rather than a percentage-based charge. Under a flat fee, the cost would remain broadly the same regardless of how much money a client transfers.
What is at Stake
The issue is therefore not simply about the size of the UPI charge. It is about who bears the cost when money moves between a client and a trading account without an actual securities transaction taking place.
SEBI's response will determine whether the existing framework needs clarification or whether capital-market-related UPI payments require a different treatment. Pandey's comments indicate that the regulator is now considering the concerns raised by the industry.
