The SEBI board meeting press conference is a masterclass on Indian markets

31 Mar 2023

The press conference post the SEBI board meets feels like being in a master class on Indian capital markets. It is a must-watch for anyone who takes an interest in the industry.

Here is how I think the outcome of yesterday’s meet will affect retail brokerage firms.

The biggest risk for almost all regulated businesses in India is regulatory change. I doubt there has ever been a time when regulations have evolved this quickly. While these regulations generally are for good, they can disrupt business models quickly.

For intermediaries, collecting fees easily is important for building a business. With an ASBA-like fund settlement mechanism using UPI, fee collection would’ve been a potential challenge. But with the ability to collect from clearing corporations (CC), this isn’t an issue.

While the UPI block mechanism to allow trading with funds lying in the bank account is optional for brokers, the ability to collect fees from CC & potentially lower regulatory burden due to non-handling of client funds would probably mean that most brokerages will offer it.

Funds lying in the customer’s bank for trades would mean higher risk for brokers & a hit on the float income, which would be subsidizing the charges today. I guess the industry will end up charging higher fees for all Txns coming through the UPI block route to make up for it.

I guess using UPI blocks for secondary market transactions might remain optional for the customer. Offering only one route for the entire country to fund transactions will be extremely complex. Such a large dependency will also be a systemic risk to our capital markets.

Regarding upstreaming funds to CC, nothing much would change for most brokers. Today, mostly all the funds are parked with CC during market hours. This will ensure that any funds that come in post-trading hours are also upstreamed to CC on the same day.

Here is the link to the press conference.

Here is the press release.

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