SEBI to examine stockbroker concerns over UPI MDR framework: Chairman Pandey
Synopsis
SEBI Chairman Tuhin Kanta Pandey has said the regulator will examine broker concerns over the UPI MDR framework — a rare same-day acknowledgement after Zerodha's Nithin Kamath warned that the structure could cost a single broker ₹2 crore a month on non-trading UPI transfers alone. The outcome could reshape how India's capital markets handle digital fund flows.
Key Takeaways
SEBI Chairman Tuhin Kanta Pandey said on 17 September 2026 that the regulator will examine stockbroker concerns over the new UPI MDR framework .
Remarks were made at the NaBFID Infrastructure Conclave 2026 in Mumbai , one day after industry concerns were formally raised.
Zerodha CEO Nithin Kamath estimated that 10,000 customers making 50 UPI transfers of ₹2 lakh each in a month without trading could cost a broker around ₹2 crore under the proposed MDR.
Kamath supports MDR in principle but argues that broking-related UPI payments warrant a lower transaction cap.
SEBI's quarterly settlement rules , which require brokers to return unused funds monthly or quarterly, compound the MDR exposure by multiplying the number of UPI transactions.
The Securities and Exchange Board of India (SEBI) will examine concerns raised by stockbrokers over the new Merchant Discount Rate (MDR) framework for UPI transactions, Chairman Tuhin Kanta Pandey said on Thursday, 17 September 2026. Pandey made the remarks on the sidelines of the NaBFID Infrastructure Conclave 2026 in Mumbai, signalling regulatory acknowledgement of the industry's objections just a day after they were formally raised.
What SEBI's Chairman Said
'Some important issues have been raised and we will look into the concerns,' Pandey said at the conclave. The statement is the first official response from the regulator since brokers and broking companies flagged the financial burden the proposed MDR structure could impose on the stockbroking industry on Wednesday.
Why Brokers Are Worried
At the heart of the dispute is a structural mismatch: under the proposed MDR framework, brokers could be charged a UPI fee when clients transfer funds into their trading accounts, regardless of whether those clients execute any trades. Since brokers cannot compel clients to trade after depositing money, they risk absorbing costs without earning any corresponding revenue — particularly if the charge cannot be passed on.
Zerodha CEO Nithin Kamath illustrated the scale of the potential problem with a concrete example: 10,000 customers making 50 UPI transfers of ₹2 lakh each in a single month without placing a single trade could cost a broker approximately ₹2 crore under the proposed MDR structure, according to his estimate.
Kamath's Position: Nuanced Support With Caveats
Kamath has broadly backed the introduction of MDR on person-to-merchant UPI payments, saying it was 'probably required' as the digital payments ecosystem matured and gained widespread adoption. However, he has argued that the broking use-case is qualitatively different from standard merchant transactions and deserves a carve-out or a lower cap.
'That being said, there are some use cases, like investing and broking, where the proposed MDR structure doesn't really make sense,' Kamath wrote in a post on X. He has suggested that a lower transaction cap be considered specifically for broking-related UPI payments.
Quarterly Settlement Rules Add Another Layer
Kamath also flagged the compounding effect of SEBI's quarterly settlement (QS) regulations, which require brokers to return unused client funds every month or quarter. This mandatory cycle means brokers continuously receive and return funds via UPI, multiplying the number of transactions — and therefore the potential MDR exposure — with no corresponding increase in trading revenue. 'What makes this even more challenging is quarterly settlement (QS). This is a SEBI regulation that requires brokers to send unused funds back to clients every month or quarter,' he noted on X.
What Happens Next
SEBI's commitment to 'look into' the concerns stops short of a formal review or timeline, but industry observers regard it as a meaningful first step. The regulator is expected to engage with broker associations in the coming weeks before any policy position is firmed up. How SEBI calibrates the MDR framework for broking-specific UPI flows will have direct implications for millions of retail investors and the broader cost structure of India's capital markets infrastructure.
Point of View
In effect, being asked to reconcile two of its own design choices. If it grants broking a carve-out, it sets a precedent for other sector-specific exemptions that could fragment the MDR framework before it even launches. If it does not, the cost will likely flow to retail investors through higher fees — an outcome that cuts against SEBI's own market-widening objectives.
NationPress
17 Sept 2026
Frequently Asked Questions
What is the UPI MDR framework and why are stockbrokers concerned?
The Merchant Discount Rate (MDR) framework proposes levying a fee on person-to-merchant UPI transactions. Stockbrokers are concerned because they could be charged this fee when clients transfer funds into trading accounts, even if those clients never execute a trade, leaving brokers liable for costs with no corresponding revenue.
What did SEBI Chairman Tuhin Kanta Pandey say about broker concerns?
SEBI Chairman Tuhin Kanta Pandey said on 17 September 2026 that some important issues have been raised and the regulator will look into the concerns. He made the remark at the NaBFID Infrastructure Conclave 2026 in Mumbai.
What specific cost risk did Zerodha's Nithin Kamath flag?
Kamath estimated that 10,000 customers making 50 UPI transfers of ₹2 lakh each in a month, without executing a single trade, could cost a broker around ₹2 crore under the proposed MDR structure. He argued this makes the framework unsuitable for broking use cases without a lower transaction cap.
How do SEBI's quarterly settlement rules worsen the MDR problem for brokers?
SEBI's quarterly settlement regulations require brokers to return unused client funds every month or quarter, creating a repeated cycle of UPI inflows and outflows. Each transfer in this cycle could attract an MDR charge, multiplying the broker's cost exposure without any increase in trading activity or revenue.
Has SEBI committed to changing the UPI MDR framework for brokers?
No formal commitment or timeline has been announced. SEBI's chairman said the regulator would 'look into' the concerns, which industry observers see as an opening for engagement with broker associations before any policy position is finalised.
