SEBI mulls unbundling broker fees; MF, broking industry flag risk to research universe

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The Securities and Exchange Board of India (SEBI) is examining a proposal to unbundle broking fees as part of a wider clean-up of capital market regulations, with the matter expected to be taken up at its December 17 board meeting, according to people familiar with the discussions. The proposal is embedded in a broader exercise to overhaul and rationalise the Mutual Fund Regulations 1966 and the Securities and Exchange Board of India (Stock Brokers) Regulations 1992, both of which may see their size reduced by nearly half as outdated provisions are removed and compliance requirements streamlined.

A source said the regulator aims to improve transparency and reduce ambiguities across the two long-standing regulation sets. “Many of the rules have become redundant or overlapping over the years. The idea is to simplify the framework without diluting safeguards,” an official aware of the matter said.

Transparent costs
As part of the mutual fund overhaul, SEBI is working on greater transparency in expense ratio disclosures, with all levies — including Securities Transaction Tax (STT) and Commodity Transaction Tax (CTT) — to be displayed separately to investors.

Alongside this, the regulator is weighing whether the broking fee charged to investors should be broken into components, rather than being bundled into the current 12 paise per transaction cost. The proposal under discussion would reduce the embedded fee to about 2 paise, with investors paying separately for research provided by brokers.

The official familiar with the proposal said the intention is to give investors clarity on what they are paying for. Unbundling brings accountability to each service of the cost of execution versus the cost of research.

Industry warns of hit to research coverage

The broking and mutual fund industries, however, have pushed back strongly, arguing that unbundling could sharply reduce research budgets.

The industry has warned that such a move risks unintended consequences. “Where unbundling was attempted in Europe, retail clients simply did not pay for research and firms cut coverage. India could face a similar outcome,” the person noted, adding that the proposal may discourage analysis at a time when the domestic market is expanding.

Industry has said that very few investors may be willing to pay separately for research, and that the revenue loss could reduce sector studies and analysis. India’s active equity research universe currently covers only around 350 stocks.

SEBI seeks wider independent research

SEBI believes deeper research coverage is vital for a maturing market. Sources say India’s expanding investor base and rising number of listed companies require broader, independent analysis across both buy-side and sell-side teams, with coverage ideally widening to 700–800 stocks.

The official involved in the discussions said, “We want research to be true-to-label.”

The unbundling proposal remains part of ongoing consultations.