Brokers' future role may reduce to just processing orders: Zerodha CEO Nithin Kamath

"The latest regulation is around the direct payout of securities to investor demat accounts upon purchase. Today, when investors buy securities, they're credited by the clearing corporation to the stock brokers’ 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 said.

The decision for a direct payout of securities is aimed at enhancing operational efficiency and reducing the risk to clients' securities. Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective clients’ demat accounts.

This facility of direct transfer has already been available since February 1, 2001 on a voluntary basis and this has now been made mandatory.

The market regulator said it was done after extensive deliberations with the stock exchanges, clearing corporations (CCs) and depositories. Sebi has decided that "the securities for pay-out shall be credited directly to the respective client's demat account by the CCs," the circular said.

Moreover, clearing corporations should provide a mechanism for trading members (TMs) or clearing members (CMs) to identify the unpaid securities and funded stocks under the margin trading facility.

In case of any shortages "arising due to inter se netting of positions between clients" – internal shortages – Sebi suggested TM or CM should handle such shortages through the process of auction.

Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

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

"Another move which will most likely be introduced is around increasing the limit for a Basic Services Demat account (BSDA) from the current Rs 4 lakh to Rs 10 lakh. So, investors will pay 0 or reduced AMC on their demat accounts with holdings up to Rs 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.

," the tweet said further.

At present, an individual can hold debt securities worth up to Rs 2 lakh and other than debt securities worth up to Rs 2 lakh in a single demat account to be eligible for BSDA.

A basic service demat account, or BSDA, is a more basic version of a regular demat account. The facility was introduced by Sebi in 2012 for reducing the burden of demat charges on investors with small portfolios.

In order to further boost participation in the securities market and to facilitate ease of doing investments, the facility of BDSA has been comprehensively reviewed, Sebi said in its consultation paper.

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