SEBI’s New Guidelines on Charges Levied by Market Infrastructure Institutions

The Securities and Exchange Board of India (SEBI) has issued new guidelines to ensure fairness and transparency in the charges levied by Market Infrastructure Institutions (MIIs). These guidelines, effective from October 1, 2024, aim to protect investors and promote a more equitable securities market. Here’s a breakdown of the key points from SEBI’s circular:

Role of MIIs

Market Infrastructure Institutions (MIIs) such as stock exchanges, clearing corporations, and depositories play a crucial role as the first-level regulators in the securities market. They are responsible for providing equal, unrestricted, transparent, and fair access to all market participants. This principle is enshrined in various regulations under the Securities Contracts (Regulations) and SEBI (Depositories and Participants) Regulations.

Examination of Current Practices

SEBI examined the current processes related to the charges levied by MIIs on their members, which include stock brokers, depository participants, and clearing members. It was found that some MIIs follow a volume-based, slab-wise charge structure. These charges are recovered from the end clients by the members on a daily basis, while the MIIs receive aggregate charges on a monthly basis.

Issues Identified

The current charging process can lead to discrepancies:

Members may collect more charges from end clients than what is eventually paid to the MIIs due to the slab benefits.

This can result in misleading disclosures to the end clients about the actual charges levied by MIIs.

The slab-wise charge structure can impact transparency and create an unequal playing field among members of different sizes.

New Principles for Charge Structures

To address these issues, SEBI, after discussions with its Secondary Market Advisory Committee (SMAC), has decided on the following principles for MIIs:

1. True to Label Charges: Charges levied on end clients should match the charges received by MIIs.
2. Uniform Charge Structure: MIIs should implement a uniform charge structure that is equal for all members, eliminating the slab-wise system based on volume or activity.
3. Consideration of Existing Charges: The new charge structure should take into account the current per-unit charges so that end clients benefit from any reduction in charges.

Implementation Steps for MIIs

MIIs are directed to take the following actions to comply with the new guidelines:

1. Redesign Charge Structures: MIIs must redesign their charge structures and associated processes to align with the new principles.
2. Update Infrastructure: MIIs need to update their infrastructure and systems, including amendments to relevant bye-laws, rules, and regulations.
3. Inform Members: MIIs should inform their members about the new provisions and disseminate this information on their websites.
4. Report to SEBI: MIIs must communicate the status of their implementation of these provisions to SEBI.

Effective Date

The new guidelines will come into effect from October 1, 2024, and are aimed at protecting the interests of investors, promoting market development, and ensuring regulatory compliance.

These changes by SEBI are expected to bring more transparency and fairness in the market, benefitting all market participants and ensuring a level playing field.

 Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions