Nithin Kamath says NSE’s new directive will hurt business: ’We are stopping our referral programme’

Zerodha co-founder Nithin Kamath said on Wednesday that the company will stop sharing brokerage revenue for referrals in response to a recent NSE circular.

The circular, issued last week, prohibits brokers from offering brokerage as referral incentives unless the individual is registered as an authorized person with the exchanges.

“NSE issued a circular last week stopping brokers from sharing any brokerage as a referral incentive unless that person is registered as an authorized person with the exchanges. This is another one of those circulars that will hurt the business,” Kamath said in a social media post.

Zerodha has decided to discontinue its referral program and provide one-time payouts for any outstanding amounts. “As a result, we will pay out all referral wallet balances > ₹10 (as of July 31, 2024; the last time this balance was updated) and stop our referral program. However, you will continue to receive 300 reward points one time for every account you refer that you can redeem against AMC or paid access to other partner products (smallcase, Tickertape, Tijori, MProfit & Quicko),” he added.

However, Kamath reassured users that the company would maintain its referral rewards program, allowing users to earn reward points that can be redeemed for a range of services, thereby preserving the continuity of their referral incentives.

What's behind NSE's decision?

This move reflects Zerodha’s alignment with the NSE’s goal to curb trade inducement, a rising concern within regulatory circles.

The circular underscored that only registered entities could participate in referral activities and explicitly prohibited schemes that promised fixed returns or ran unauthorized investment plans.

The NSE's circular is part of a wider initiative to safeguard investors and guarantee that all trading activities comply with the regulatory standards established by SEBI and the exchange.

By implementing this measure, the NSE seeks to reduce risks related to unauthorized schemes and ensure that all promotional activities are carried out transparently and within legal boundaries.