Market participants raise concerns over BSE's liquidity-based fee structure; exchange says compliant with SEBI norms

Market participants raise concern on BSE’s fee structure, exchange denies

Is BSE by-passing the market regulator, Securities and Exchange Board of India (SEBI), circular on true to label? This is what some market participants have alleged against BSE, which the exchange has denied. The allegation is that BSE is charging less transaction fee for high-volume blue-chip stocks, and low volume trades in other stocks are charged high, which means it varies based on volumes, by scrip group.

It is alleged that stocks categorized in the high-volume scrips in Group A or B face a lower transaction fee of Rs 375 per crore traded (0.00375%), whereas low-volume trades in the X or XT group are charged Rs 10,000 per crore (0.1%). This classification is being called discriminatory as it is giving a volume-based discount.

X and XT groups of shares are the shares that are settled on the same day and are partly paid. These shares are traded exclusively on the BSE.

BSE denied these allegations, in a reply exchange, said, “The 'True to Label' circular mandates that market infrastructure institutions (MIIs) must be transparent in charging their fees. BSE’s charges are transparent and fulfill true to label requirement and ensure that the levy on their members is directly passed on to the end client, without any hidden rebates or discounts”.

BSE also reasoned for higher charges for the scrips of the X and XT categories. BSE further added, “The scrips which are part of the X and XT groups are exclusively listed on BSE and generally tend to have lower liquidity. With a view to protecting investor interest and to deter investors from excessive trading in such securities, differential charges have been levied on this category of scrips since 2016."

Exchange sources said, BSE follows the circular and its transaction fees are flat and transparent for the end clients and do not have any scope for rebates for members. They further added, the revision was originally made in 2016, and BSE is still supportive of this move, as it clearly reflects the exchange’s intention of protecting investors from excessive trading in comparatively lesser liquid stocks.

One source further adds, imposing higher transaction charges on X and XT group scrips serves as a balanced approach to encourage responsible investing without completely restricting access to these securities. Whenever such scrips get listed on other exchanges, the transaction charges are adjusted accordingly.

Being part of the X or XT group does not imply non-compliance, nor does it justify suspending trading altogether. These scrips are still subject to regulatory oversight and may improve over time. In fact, many such companies have transitioned to Group A or B over the years. Hence, suspending them would be disproportionate and not in the broader interest of investor choice and market inclusiveness.

As per industry sources, starting October 1, 2024, NSE charges a uniform fee of Rs 297 per crore traded (0.00297%) in the equity cash market for all stocks, which is much lower than BSE’s lowest rate, and what NSE levies is a single rate replacing its earlier volume-based slabs.

One broking industry insider said, "Some participants may have concerns, but the issue never reached the industry association level".

Interestingly, no market participant has confirmed that they have approached SEBI against the alleged practice. Usually, if some such practice is observed, the participants approach the exchange and raise the concern. If the issue is not resolved, then they approach the regulator, SEBI. SEBI, after examining the matter, issues directions or reviews its policies.

SEBI circular of July 1, 2024 which became effective from October 1, said, charges which are to be recovered from the end client should be True to Label i.e. if certain exchange, depository or clearing charge is levied on the end client by brokers, depository participants or clearing members, it should be ensured that the same amount is received by them. The charge structure of the exchange, depository, and clearing should be uniform and equal for all its members instead of slab-wise, dependent on the volume or activity of members. It has no mention of uniformity in the fee structure across the stock category. But participants believe that SEBI should clear the air on the matter.

SEBI did not reply to an email seeking clarity on whether the BSE’s fee structure is compliant with the July 1 circular.