Sebi may review brokers' concerns over MDR on large UPI fund transfers

The Securities and Exchange Board of India (Sebi) may look into the issues raised by stock brokers over the new merchant discount rate (MDR) for large fund transfers via the unified payments interface (UPI), Chairman Tuhin Kanta Pandey said on Thursday.

The MDR for capital market transactions has been set at 0.02 per cent of the transaction value, with a maximum cap of Rs 300, for payments towards mutual funds, securities, stock brokers, dealers and investment advisers. The changes will come into effect from October 15.

However, recurring standing instructions or UPI mandates, such as those for mutual fund SIPs, will not carry MDR charges.

“I think there are some important issues there. We will certainly look into it and see how we can ease them,” Pandey said on the sidelines of the National Bank for Financing Infrastructure and Development's Infrastructure Conclave.

Several brokers had raised concerns over the charges as, under the mandate by Sebi, brokers need to return funds to clients periodically — known as the client float. The norm to transfer back unused funds was introduced by Sebi to prevent any misuse of the client float.

“Regulation essentially forces this movement of money every month or quarter, and the broker could end up bearing the cost when the money comes back, without any incremental benefit or revenue,” Nithin Kamath, founder of discount broking platform Zerodha, wrote in a post on his social media handle.

Several other brokers also highlighted that the charge would become a recurring operating cost running into crores, without generating any trade or revenue for the broker.

Payment processing partners of such brokers indicate that some brokers may prefer net banking over UPI, considering that net banking transactions have a flat fee of around Rs 8 to Rs 12, negotiated between banks and payment processing partners.

Speaking at the conference, the Sebi chairman also said the regulator would focus on widening participation in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), deepening the corporate bond market and continuing to evolve the alternative investment fund (AIF) framework.

He said there was scope to bring more domestic institutional capital, global long-term investors and retail participation into REITs and InvITs, while the corporate bond market needed a wider issuer base, greater participation and better secondary-market liquidity.