In a recent post on X (formerly Twitter), Nithin Kamath, co-founder of Zerodha, commended SEBI, the market regulator, for its continuous efforts to enhance investor friendliness in the Indian markets. Kamath speculated that brokers might soon find their roles reduced to merely processing orders due to these regulatory advancements.
Kamath noted, “The reduction in the AMC is, in a way, a result of the gradual reduction in a broker's role. In the not-so-distant future, I wouldn't be surprised if all that the brokers will be doing is just processing orders.”
Key Regulatory Changes
Since 2019, SEBI has implemented several changes that have significantly impacted the traditional role of brokers:
Segregation of Client Funds: Brokers are now required to keep client funds separate from their own, ensuring greater security and transparency for investors.
Compulsory Quarterly Bank Reconciliations: This measure mandates brokers to reconcile their bank accounts quarterly, enhancing financial accuracy and accountability.
Elimination of Fund Pooling for Mutual Fund Transactions: Brokers can no longer pool funds for mutual fund transactions, which further safeguards investor interests.
Direct Payout of Securities
Kamath highlighted a recent regulation aimed at simplifying operations for brokers and providing direct benefits to investors. Previously, when investors purchased securities, the clearing corporation (CC) credited these securities to the broker's pool account, who then transferred them to the client’s account. With the new regulation, CCs will directly transfer securities to the client’s demat account, bypassing the broker entirely. Kamath explained, “This also eases operations at a broker's end.”
Increased Limits for Basic Services Demat Accounts
Another anticipated change is the likely increase in the limit for Basic Services Demat Accounts (BSDA). Kamath mentioned, “Another move which will most likely be introduced is around increasing the limit for a Basic Services Demat account (BSDA) from the current ₹4 lakh to ₹10 lakh. So, investors will pay 0 or reduced AMC on their demat accounts with holdings up to ₹10 lakh.”
The Future of Brokerage
Kamath’s insights underscore the evolving landscape of brokerage in India. With SEBI's continuous efforts to streamline and secure financial operations, brokers may need to adapt to a reduced role, focusing primarily on processing orders. These changes are poised to create a more transparent and investor-friendly market, ultimately benefiting the end-users while reshaping the traditional functions of brokers.
Stay tuned for more updates on how these regulatory changes will impact the Indian financial market and the roles within it.
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