The stock broking community, which was barred from paying referral fees to unregistered influencers to get them more clients, have seemingly found innovative ways to bypass the ban and continue engaging with such unregistered players to widen their client base.
People familiar with the matter say that such transactions are now being recorded in the books under various innovative names and are not mentioned as referral fees.
“As brokers cannot use referral fees in their books, some are making payments to the influencers in the name of brand building fee, video making fee, and marketing fee,” said one of the persons cited. The payments here refer to money that broking firms pay influencers after a potential client on-boards using the referral link that influencers post on various platforms, including social media.
The National Stock Exchange (NSE), in August, barred broker members from paying referral fees to unregistered financial influencers unless they register as Authorised Persons of the broker.
The circular states that any person referring a client to a broker should be appointed as an AP after getting certain approvals from the exchange. The aim of the circular was to stop the malpractice of influencing individuals to trade without factoring in their risk profile or product suitability assessment.
While the circular came into force with immediate effect, the broker community had decided that all ongoing arrangements with influencers and pending payments would be closed by the first week of September.
Zerodha, for instance, said it is ending its referral programme. “We will pay out all referral wallet balances >Rs 10 (as of July 31, 2024; the last time this balance was updated) and stop our referral program,” it had said in a post a post on its website on August 20.
The brokerage, however, had also said that it will put forth their views before the exchange on why the referral program should continue.
To be sure, many broking firms who had tied up with a limited number of influencers to increase their reach by giving the latter a part of the brokerage fee, managed to make all the pending payments by the first week of September or converted the influencers into APs.
Converting Influencers to APs ‘Cumbersome’
But, many broking firms who engaged with a large number of influencers failed to comply with the NSE circular and continue to pay unregistered influencers.
“Now, some of these brokers continue to make payments to the influencers without making them an AP, and all of this will come to Sebi’s notice in its audit,” said a person familiar with the matter.
Many in the market, however, feel that while the intent of the NSE circular was correct, the policy-makers need to understand that converting influencers to APs is currently a cumbersome process.
Trivesh D, co-founder of Tradejini, said that factors like the registration fees being charged by exchanges at the time of registration, its renewal, and inspection of the AP’s premises and activities carried out every year by the stock broker, add to the financial cost while converting influencers to APs.
However he added, "Despite some brokers disguising referral fees, our firm strictly follows regulatory norms, upholding transparency without considering alternative methods to bypass guidelines."
An email query sent to NSE remained unanswered till the time of publishing this story.
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