The Securities and Exchange Board of India (SEBI) is set to examine concerns raised by stockbrokers over the proposed Merchant Discount Rate (MDR) framework for UPI transactions. SEBI Chairman Tuhin Kanta Pandey said the regulator would look into the issues highlighted by brokers, according to a report by NDTV Profit.
The comments came on the sidelines of the NaBFID Infrastructure Conclave 2026, where Pandey acknowledged that the broking industry had raised several important concerns about the proposed payment structure.
Brokers Raise Concerns Over Additional Costs
The SEBI chairman’s remarks followed concerns expressed by brokers and broking companies a day earlier about the possible financial impact of UPI MDR on their businesses. The industry has raised questions about whether brokers could face charges in situations where customers transfer money into their trading accounts but ultimately do not place any orders.
The issue is particularly relevant as UPI has become a widely used method for moving money between customers and financial platforms. Any payment-related cost attached to such transactions could therefore have a direct impact on brokerage operations.
Nithin Kamath Points to a Specific Challenge
Zerodha CEO Nithin Kamath has supported the broader move toward a UPI framework for person-to-merchant payments, describing it as potentially necessary as digital payments continue to expand.
At the same time, Kamath has highlighted a concern specific to investment and broking transactions. He said brokers cannot know in advance whether money deposited through UPI will eventually be used to execute a trade.
According to Kamath, this creates a situation in which a broker could potentially incur a payment charge even though the customer does not generate any trading revenue from the transferred funds.
Proposal for a Lower Transaction Limit
Kamath has suggested that the authorities consider a lower transaction cap for UPI payments linked to stockbroking activities. In a post on X, he said the proposed MDR arrangement may not be suitable for certain use cases, including investing and broking.
His argument is based on the difference between ordinary merchant payments and transfers made to a brokerage account. Customers may add funds for a future transaction, change their plans or simply leave the money unused, meaning the broker cannot require them to trade after making a payment.
Potential Cost Impact Highlighted
To illustrate the possible financial burden, Kamath gave an example involving 10,000 customers. If each customer made 50 UPI transfers of Rs 2 lakh during a month without carrying out any trade, he estimated that the resulting MDR expense could reach about Rs 2 crore for a broker.
The example was presented to highlight the potential mismatch between payment costs and revenue when funds enter brokerage accounts but are not subsequently used for trading.
Quarterly Settlement Adds Another Issue
Kamath also pointed to the impact of SEBI’s client-fund settlement requirements. Brokers are required to return unused client funds under the applicable settlement framework, adding another layer of movement between customers and brokerage accounts.
He argued that this could make the MDR issue more complicated because money received through UPI may later have to be returned to the customer if it remains unused.
SEBI’s decision to examine the concerns could provide greater clarity for brokers and other market participants as the UPI MDR framework develops. The regulator’s review will determine how the payment structure applies to stockbroking-related transactions and whether adjustments are required.