SEBI Chairman Tuhin Kanta Pandey has said the markets regulator will examine concerns raised by stockbrokers and mutual funds over the proposed Merchant Discount Rate (MDR) on UPI transactions.
“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 an event in Mumbai.
Under the new framework, UPI transactions in the capital-market category, including payments to stockbrokers and transactions involving securities and mutual funds, will attract an MDR of 0.02%, capped at ₹300 per transaction. The charges are scheduled to take effect from October 15.
Stockbrokers have raised concerns because UPI transfers into trading accounts could attract MDR even when the funds are not ultimately used for a trade and do not generate brokerage revenue.
“Treating stockbrokers as merchants for MDR is fundamentally misplaced: brokers are largely pass-through entities, with client funds flowing to clearing corporations for margins and settlement, so levying MDR on the entire fund flow rather than the broker’s actual revenue which is brokerage would make UPI prohibitively expensive and effectively a non-starter for the broking industry,” said Uttam Bagri, Managing Director, BCB Brokerage Private Limited.
Zerodha co-founder Nithin Kamath has also highlighted the issue. He pointed out that clients can transfer funds to brokers without executing a trade, leaving brokers to bear the UPI cost without earning brokerage.
Kamath also referred to SEBI’s quarterly settlement rules, under which unused client funds must be returned and can later be transferred back into trading accounts, potentially creating repeated UPI costs without corresponding revenue.
He has suggested a much lower MDR for broking transactions, with a cap of ₹5–₹10 per transaction, instead of the proposed ₹300 cap.
Broker associations have also taken the matter directly to SEBI, seeking clarity on whether transfers into broking accounts can be treated differently due to regulatory requirements around client-fund settlement.
The industry is also seeking a flat-fee model instead of a percentage-based MDR, as the latter increases costs with the amount transferred even when no trade takes place.
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