The exchanges reiterated last night that stock brokers cannot distribute any lending products other than those explicitly tied to trading (MTF). This applies even if the broker is registered as a research analyst. However, despite yesterday’s circular, brokers’ parent companies are allowed to create a “super-app” where broking and lending happens side-by-side. This is permissible today because there are no restrictions on the parent entity.

The core concern is that any type of lending or inducement to borrow on a trading platform could lead to borrowed money flowing back into the markets. And unsecured lending is probably the worst; the risk taken can go up exponentially. People can end up trading with leverage they don’t fully understand or shouldn’t be taking in the first place.

Doesn’t affect us at Zerodha. One of the reasons we haven’t plugged in our LAS (Loan Against Securities) product from Zerodha Capital on the trading app was this same concern, keeping the line clear between trading capital and borrowed funds.

All said, this is a good first step; hope to see more in this direction.

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