Overcharging ‘Exchange Transaction Fee’ by Many Brokers in India

MewarLion

Active Member
#1
Yes, you heard it right. Most stock brokers in India are charging higher Exchange Transaction Fee than what stock exchanges allows them to charge. To understand how they are doing this lets get in to detail of it.

Professional Clearing Member Fee (PCM Fee or Clearing Transaction Charges)
All Stock Brokers are Trading- Cum- Self Clearing Members for Equity Segment i.e. Cash Market.

NSE and BSE offer four types of membership for Equity Futures & Options (Equity F&O) and Currency Futures & Options (Currency F&O). Any Stock Broker can take any one type of membership from first three memberships for Futures and Options. Stock Broker can take different membership for different segment and exchange e.g. Stock Broker can be Trading Cum Self Clearing Member for Equity F&O and Trading Member for Currency F&O. Stock Broker cannot become Professional Clearing Member (PCM) and PCM cannot become Stock Broker.


Types of Membership .................... Cash Segment ................ Futures & Option Segment
Trading Member ..............................Not Possible.................... Possible
Trading Cum Self Clearing Member ........Possible ......................Possible
Trading Cum Clearing Member ......Not Possible ..............Possible
Professional Clearing Member .....Not Possible .............Possible



Membership can be taken for any segments individually or in combination:

Membership Type and Activities allowed in particular Membership

Trading Member This category of membership entitles a member to execute trades on his own account as well as on account of his clients but, clearing and settlement of trades executed through the Trading Member would have to be done through a Trading-cum Clearing Member or Professional Clearing Member of the Exchange


Professional Clearing Member This category of membership entitles a member to execute trades and to clear and settle the trades executed on his own account as well as on account of his clients.

Trading Cum Clearing Member This category of membership entitles a member to execute trades on his own account as well as on account of his clients and to clear and settle trades executed by themselves as well as by other trading members who choose to use clearing services of the member.

Trading Cum Self Clearing Member This category of membership entitles a member to clear and settle trades of such members of the Exchange who choose to clear and settle their trades through this member.

Any Stock Broker who is Trading Member of NSE or BSE for Equity F&O or Currency F&O has to clear its clearing and settlement obligation through another Trading Cum Clearing Member (TCM) or Professional Clearing Member (PCM). Majority of the Trading Member clear their obligations through PCM as they are not doing Stock Broking activities.

Trading Member has to pay TCM or PCM certain fees and charges, along with applicable service tax, for availing their services. Such payment is called or known by various names, such as Clearing Fee or PCM Fee or Clearing Transaction Charges. There is no maximum limit on how much these charges should be and these are not regulated either by Clearing Corporation or SEBI, as these charges are voluntarily paid by the Stock Broker to TCM or PCM. Further Stock Broker has option to become clearing member of Clearing Corporation and voluntarily decides not to become member of Clearing Corporation as Clearing Membership requires higher Net worth requirement and additional liquid base margin capital vis- a- vis going to TCM or PCM.

Decision of Stock Broker to clear trades through TCM or PCM is voluntary and payment for availing such services is also voluntary. There is no regulation governing such fees and the amount of fees is left to be decided between Stock Broker and TCM or PCM.

Exchanges have issued various circulars, compliance handbook etc from time to time on matters relating to Brokerage, Statutory & Regulatory Levies in Contract Notes.


1. Circular Number NSE/INSP/23739 Inspection & Compliance https://www.nseindia.com/content/circulars/INSP23739.zip Dated June 24, 2013 Refer Annexure V with Subject Clarification on Brokerage, Statutory Levies and Regulatory Levies & Charges

2. Circular Number NSE/INSP/27155 Inspection & Compliance https://www.nseindia.com/content/circulars/INSP27155.zip Dated July 16, 2014 Refer Annexure B with Subject Clarification on Brokerage, Statutory Levies and Regulatory Levies & Charges

3. Circular Number NSE/INSP/32799 Inspection & Compliance https://www.nseindia.com/content/circulars/INSP32799.zip July 13, 2016
Refer Point No. 2.6 of Part B Clarification on Brokerage, Statutory Levies
and Regulatory Levies & Charges



Contents of the above three circulars with respect to above point is same and is reproduced herein below:

Clarification on Brokerage, Statutory Levies and Regulatory Levies & Charges


1. Following levies/ brokerage can only be charged to client in the contract note:

a. Statutory levies: These are charges levied by Central/ State governments e.g. Service Tax, Security Transaction Tax (STT), Stamp Duty, etc. and may be recovered from client only at actuals paid/ Payable.

b. Regulatory levies/charges: These are charges levied by SEBI / Exchanges / Clearing Corporations e.g. SEBI turnover fees, Exchange transaction charges, etc. If such charges are separately recovered from client, they may be specified in contract notes or may be given under the head "Other levies, if any". The above charges may be recovered from client only at actuals paid/ Payable.

c. Brokerage can be charged as may be mutually agreed between member & client subject to maximum permissible by the Exchange and brokerage rates should be mentioned in a tariff sheet.



2. Brokerage can be charged as under:

Capital Market Segment:

As per circulars no NSE/ CMT/ 001 dated 28-Oct-1994 https://www.nseindia.com/content/circulars/ingr3685.doc and NSE/INSP/3685 dated 17-Oct-2002, the maximum brokerage chargeable by a Trading Member in relation to trades effected in the securities admitted to dealings on the CM segment of the Exchange shall be 2.5% of the contract price exclusive of statutory levies.

Where the sale / purchase value of a share is Rs. 10 or less, a maximum brokerage of 25 paise per share may be collected.


Futures contracts:

As per Regulation 3.7.2 of the Regulations (F&O segment) of the Exchange and Circular no. NSE/FOTRD/001 (download ref no. 1688) https://www.nseindia.com/content/members/mem_comp_annexC.docdated 08-Jun-2000 and Currency Derivative Circular dated 26-Aug-2008, NSE/INSP/11184https://www.nseindia.com/content/circulars/insp11184.htm the maximum brokerage chargeable by a trading member in relation to trades executed on the Exchange shall be 2.5% of the contract value exclusive of statutory levies.


Option contracts:

As per circular no NSE/F&O/0098/2005 (download ref no. 5978) dated 30-Mar-05, and Circular no. NSE/INSP/2006/56 download ref no NSE/INSP/8338https://nseindia.com/content/circulars/insp8338.htm dated 05-Jan-07 the trading member shall charge brokerage for option contracts on the premium amount at which the option contract was bought or sold and not on the strike price of the option contract. It is hereby clarified that brokerage on options contracts shall not exceed 2.5% of the premium amount or Rs.100/- (per lot) whichever is higher.



3. As per circular no NSE/INSP/2006/44 (download ref no. 7330) and NSE/INSP/2006/45 (download ref no. 7329)https://www.nseindia.com/content/circulars/insp7329.htm dated 30-Mar-2006 Service Tax, other statutory and regulatory levies, if required, may be given under the head "Other levies, if any". Brokerage charged shall be given for every trade.


4. As per circular no NSE/INSP/2006/44 (download ref no. 7330)www.nse-india.com/content/circulars/insp7330.htm dated 30-Mar-2006 contract description’ shall have the details viz. instrument type, underlying (symbol), expiry date, strike price and option type in case of Options Contact and in case of Futures Contract, instrument name underlying (symbol) and expiry date in the manner as provided by the Exchange.
e.g.
(i) Contract description for a typical futures contract - FUTIDX NIFTY 30MAR13
(ii) Contract description for a typical options contract- OPTSTKHINDLEVER 30MAR13 250 CE



5. Issue of Contract Note at weighted average price:


As per circular no NSE/CMO/0023/98 (download ref no.00670) dated 12-Nov-98 in case of multiple trades resulting from single order, at the request of the clients, the trading member may issue contract notes with weighted average price (WAP) as per the following procedure:

• The trading member shall be allowed to issue a contract note at weighted average price of all the trades executed for a single order. The weighted average price (WAP) shall be computed as per the following formula
WAP (Four decimals) = Total value of the shares traded for an order
• Total number of shares traded for an order
The member shall mention the words "as per annexure" in the place provided for order no., trade no., order time and trade time in the format of the contract note.
• A separate Annexure to the contract note should be issued to the clients containing details of all individual trades such as the contract number, Order number, Trades number, Trade time, Traded Quantity and Trade price, Symbol, Series, for a given order for which a weighted average price (WAP) is provided in the contract note.



6. Members may give additional details in the contract notes without compromising with the minimum details as prescribed in the format.



Pre-paid Schemes


Based on inspection of brokers and complaints received from clients/investors, it has been observed that some of the brokers are not properly documenting and disclosing to their clients details of schemes where funds are being collected in advance from them towards brokerage and other allied services. This leads to disputes, complaints and litigation later on.

Exchange in consultation with SEBI and Broker Association hereby clarified that;

• The terms & conditions of schemes relating to advance collection of funds towards brokerage and other allied services must be properly documented and positive confirmation of the clients for availing such services/schemes be obtained.

• Where the funds are collected in advance under the pre-paid schemes, the broker must ensure that the brokerage charged should not exceed the amount specified under the exchange by-laws.

• Complaints received in this respect will be viewed very seriously and the broker will be liable for disciplinary action.



What emerges from above clarifications, given again and again, is that Stocks Brokers can charge only the below given three category of charges:


a. Statutory levies: These are charges levied by Central/ State governments eg. Service Tax, Security Transaction Tax (STT), Stamp Duty, etc. and may be recovered from client only at actuals paid/ Payable.

b. Regulatory levies/charges: These are charges levied by SEBI / Exchanges / Clearing Corporations eg. SEBI turnover fees, Exchange transaction charges, etc. If such charges are separately recovered from client, they may be specified in contract notes or may be given under the head "Other levies, if any". The above charges may be recovered from client only at actuals paid/ Payable.

c. Brokerage can be charged as may be mutually agreed between member & client subject to maximum permissible by the Exchange and brokerage rates should be mentioned in a tariff sheet.


What can be collected from the Client?
Analyzing A, B and C above and all the circular in detail, following can be charged to the clients:



1 Securities Transaction Tax (STT)
Statutory Levies paid Central Government through Exchanges

2 Service Tax on Brokerage and Exchange Transaction Charges Statutory Levies paid Central Government

3 Stamp Duty on Contract Notes
Statutory Levies paid State Government

4 SEBI Transaction Fee
Regulatory Levies paid to SEBI through Exchanges

5 Exchange Transaction Charges
Regulatory Levies (Exchange being quasi Regulator) paid to Exchanges

6 Investor protection Funds
Regulatory Levies paid Exchanges / Clearing Corporation

7 Brokerage
Brokerage Collected by Broker subject to prescribed limits by SEBI / Exchanges


1. Any such practice calls for self-introspection and self regulation amongst Stock Broker so that not only the customer is charged correctly but also the regulator’s ire is not invited.

2. Clearing Fees is neither statutory levies nor Regulatory levies/charges. Payment made to Clearing Corporation cannot be equated with payments made to Professional Clearing Member or Trading Cum Clearing Members.

3.As the Regulations / Circulars stands today, No other charges except 1 to 7 above, can be recovered by any Stock Broker from its client. Hence the only inescapable inference is that PCM Fee cannot be levied / charged from the trading clients.
 

cloudTrader

Well-Known Member
#2
Are you somehow related to National Stock of Exchange? This is a really nice information & that too in great detail. This is covering very minute details so person in touch with NSE can know this much.

This is a kind of research material. Kudos.
 

copypasteaee

Humbled by Markets
#3
great workdone...
 

MewarLion

Active Member
#4
Yes . NSE has clarified to many Stock Broker that PCM Fee or Clearing Fee cannot be charged in the Contract Note. If charged Stock Broker need to refund along with interest.

If you know anyone who has been charged Clearing Fee or PCM Fee by the Broker in the Contract Note and need refund , can help him , where to write in NSE and get refund along with Interest.

I had done extensive research before writing.

Do you feel creating awareness backed by extensive research is promotion ??

Hope you would have appreciated kind of extensive research has been done and investor will benefit a lot.


He is related to a broker... Better to open a paid thread on TJ rather than advertising indirectly... This is malpractice :D
 

MewarLion

Active Member
#5
Certain information are relevant for many thread and to make as wider as possible , investor awareness about their right and protection.

Expect members to contribute so we have environment where investor are protected.


Oh !! Just now saw the same information posted in several threads. Information is good but spamming indicates different motives.
 

cloudTrader

Well-Known Member
#7
Certain information are relevant for many thread and to make as wider as possible , investor awareness about their right and protection.

Expect members to contribute so we have environment where investor are protected.
I agree with you that this kind of information is possible only after lot of research and as Traderji has himself approved your Post so what more. He must be knowing that you are not spamming.

So to continue the discussion, how should NSE should act on such kind of bypassing the law. Customers have always to bear the brunt out of ignorance.

Even on Brokerage front if we see that Conventional brokers follow a very opaque policy and charge super high brokerage as most of the traders who are new to the scene are unaware of tactics.
 

MewarLion

Active Member
#8
NSE has clarified to many Stock Broker in writing that PCM Fee or Clearing Fee cannot be charged in the Contract Note. If charged Stock Broker need to refund along with interest.

If you know anyone who has been charged Clearing Fee or PCM Fee by the Broker in the Contract Note and need refund , can help him , where to write in NSE and get refund along with Interest.

I had done extensive research before writing. Please read the stress given on " in the Contract Note " and entire research based on Contract Note , related Circular , calling exchange and many more.

You would be wondering after paying PCM Fee for 5 years , if client goes to exchange and ask whether it is charged correctly , Exchange will not only ask Stock Broker to refund along with interest and penalty but also ask their Statutory Auditor to certify that this is isolated case and there no other client whom PCM Fee or Clearing Fee has been charged.


I agree with you that this kind of information is possible only after lot of research and as Traderji has himself approved your Post so what more. He must be knowing that you are not spamming.

So to continue the discussion, how should NSE should act on such kind of bypassing the law. Customers have always to bear the brunt out of ignorance.

Even on Brokerage front if we see that Conventional brokers follow a very opaque policy and charge super high brokerage as most of the traders who are new to the scene are unaware of tactics.
 

MewarLion

Active Member
#9
Dear Headstrong007

You are senior member , must have guided me.

Deleted post from all thread except this thread. I have no intention of promoting broker A V/s Broker B.

Hope you will also remove all remarks which are not relevant with the subject under discussion.

He is related to a broker... Better to open a paid thread on TJ rather than advertising indirectly... This is malpractice :D
 

MewarLion

Active Member
#10
You are senior member , must have guided me.

Deleted post from all thread except this thread. I have no intention of promoting broker A V/s Broker B.

Hope you will also remove all remarks which are not relevant with the subject under discussion. Keep remarks which are related to subject.
Hope you will take this positively in the interest of investor awareness and start discussion on the subject.

If you feel anything is incorrect on the research , let us discuss and improve for the benefit of everyone. If you feel content is good , say thanks and make more and more people aware about this.

In expectation of positive and constructive response.



creating awareness! :D

I saw your earlier post, u r spamming for a new broker pro stocks...with pathetic leverages...1.5x for mis and no BO-CO, so that they can't attract client.

That broker prostock doesn't have any shame, spamming messages in 5-6 paid brokers thread here..

Ask your employer to open a paid thread here and then malpractice advertisement...be careful, u'll be banned soon..

And by doing this malpractice, u r reducing reputation for pro stock too..Better to open a paid thread..
 

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