Zerodha’s Nithin Kamath: ‘In future, brokers will just process orders…’ says SEBI making markets ‘investor-friendly’

Zerodha founder-CEO Nithin Kamath, on June 7, praised the Securities and Exchange Board of India (SEBI) for making the Indian markets safer and more investor-friendly.

In a post on the social media site X (formerly known as Twitter), Kamath referred to the market regulator's circular on June 5, which mandates that clients' securities payouts be made directly into their demat account upon purchase.

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The move, aimed at enhancing efficiency and reducing risk to clients' securities, will be effective from October 14, as per a PTI report.

"Since 2019, SEBI has brought in several changes that have made our markets safer and more investor-friendly. It started with the segregation of client funds, compulsory quarterly bank runs on brokers (quarterly settlement), removing pooling of funds for MF transactions, and more," Kamath wrote.

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Expect the 'Gradual Reduction in Brokers' Role', says Kamath

"Today, when investors buy securities, they're credited by the clearing corporation to the stock broker's pool account, who in turn transfers them to the clients. With the introduction of new regulation, CCs will directly transfer securities to the client's account, bypassing the broker's pool. This also eases operations at a broker's end," Kamath noted.

He added that he expects more moves from the SEBI to further ease investor-side interactions with the markets.

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"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 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," he added.

What Does the SEBI Circular Mandate?

SEBI recently made direct payout of securities to the client's account mandatory, as opposed to the brokers' pool account. In a statement, the markets regulator said the decision came after "extensive deliberations with the stock exchanges, clearing corporations (CCs) and depositories."

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CCs have also been directed to provide trading or clearing members a mechanism to identify unpaid securities and funded stocks under the margin trading facility. It added that shortages will be handled through auction, and brokers should not levy charges on the client over and above the charges levied by the clearing corporations.

In May 2023, SEBI specified various processes for handling clients' securities regarding the pay-in and pay-out of securities. This was to protect clients' securities and ensure that the stock broker segregates the securities of the client or clients so that they are not vulnerable to misuse.

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(With inputs from PTI)