SEBI to Review Stockbrokers' Concerns Over 0.02% UPI MDR Charges Effective October 15

The Securities and Exchange Board of India (SEBI) has stepped in to examine the growing apprehensions within the brokerage industry over the impending Merchant Discount Rate (MDR) on Unified Payments Interface (UPI) capital market transactions.

Speaking on the sidelines of the National Bank for Financing Infrastructure and Development (NaBFID) Infrastructure Conclave 2026, SEBI Chairman Tuhin Kanta Pandey acknowledged representations from market participants.

"I think there are some important issues there. We will certainly look into it and see how we can ease them," Pandey said in response to broker queries.

The New UPI MDR Structure

The regulatory reassessment follows the rollout of the revised digital payment framework by the National Payments Corporation of India (NPCI), slated to take effect from October 15, 2026.

The policy shift was enabled after Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026, amending Section 10A of the Payment and Settlement Systems Act, 2007. The revision permitted system providers to levy transaction costs to ensure the long-term infrastructure sustainability of the UPI rail.

Key details of the new MDR fee tiers:

• Standard Commercial Payments: Person-to-Merchant (P2M) transactions above ₹2,000 carry a standard MDR of 0.4%, with a maximum cap of ₹300 for payments of ₹75,000 and above.
• Capital Market Transactions: Direct payments to SEBI-registered brokers, mutual funds, securities dealers, and investment platforms will face an MDR of 0.02%, capped at ₹300 per transaction.
• Exempted Transactions: Person-to-Person (P2P) transfers, transactions below ₹2,000, and recurring UPI mandates—such as systematic investment plans (SIPs) for mutual funds—remain free of MDR charges.

Why Stockbrokers Are Flagging Risks

While the 0.02% capital market rate is considerably lower than the baseline commercial fee, leading domestic brokerages, including discount broking firms such as Zerodha, Groww, and Angel One, argue that the operational mechanism of stock trading makes the fee uniquely punitive.

The primary grievance centers on the disconnect between fund inflows and executed market turnover. Under the UPI framework, MDR is deducted upon the merchant receiving funds, irrespective of whether the client ever executes a trade that yields brokerage revenue.

The issue is further exacerbated by SEBI's existing running account settlement mandate, which requires stockbrokers to periodically transfer unutilized client balances back to their primary bank accounts every month or quarter to prevent the misuse of client float.

Nithin Kamath, co-founder and Chief Executive Officer of Zerodha, voiced these systemic frictions: "Regulation essentially forces this movement of money every month or quarter, and the broker could end up bearing the cost when the money comes back, without any incremental benefit or revenue."

The BSE Brokers' Forum has also submitted a formal representation to SEBI, noting that discount brokerages operating on razor-thin margins cannot easily absorb repeated top-up fees without altering their pricing models.

Market Implications for Retail Investors

For everyday Indian market participants, direct UPI transactions will remain nominally free at the point of transfer, as MDR is structured as a merchant-side charge.

However, if SEBI and the NPCI's UPI Steering Committee do not establish a lower fixed ceiling or grant specific exemptions for quarterly settlement re-deposits, brokerages may eventually be forced to adjust account maintenance charges, alter fund transfer options, or pass on gateway fees to active traders.

Tags: SEBI NPCI Zerodha BSE Stockbroking Digital Payments