Zerodha Co-Founder Gives SEBI's Regulations A Thumbs-Up But Warns Of A Potential Business Model Shakeup

Zerodha’s Nithin Kamath lauded market regulator SEBI’s revised regulations but believes that they can quickly disrupt business models for numerous industry stakeholders.

What Happened? According to the Zerodha co-founder, regulatory change is the greatest risk faced by nearly all regulated businesses in India. He believes that regulations have never evolved as rapidly as they are now, and while such changes are usually positive, they have the potential to disrupt business models swiftly.

Kamath stated that it is crucial for intermediaries to have an easy fee collection system in place for business growth. “The introduction of an ASBA-like fund settlement mechanism using UPI could have posed a potential challenge for fee collection. However, with the ability to collect fees from clearing corporations, this will not be an issue,” he tweeted.

The entrepreneur was referring to the SEBI boards recent approval of an Application Supported by Blocked Amount (ASBA)-like facility for trading in the secondary market for investors, which will allow stock brokers to settle brokerage payments directly with UPI clients.

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Brokers can also choose to approach clearing corporations (CC) to have the standard rate of brokerage deducted from the UPI block of the clients. This facility will be optional for both investors and stock brokers, according to SEBI.

“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,” noted Kamath.

“Funds lying in the customer’s bank for trades would mean higher risk for brokers and 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 transactions coming through the UPI block route to make up for it,” the reasoned.

Per Kamath, customers may have the option to choose whether or not to engage in secondary market transactions. The entrepreneur believes that mandating a single funding route for the entire country would highly complicate and pose a significant systemic risk to our capital markets.

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