Brokerages Urge SEBI to Keep Research Fee Unchanged and Raise Concerns Over MF Proposal

Brokerages Meet SEBI to Seek Status Quo on Research Fee Amid Rising Concerns Over TER Overhaul

In a significant development impacting India’s capital market ecosystem, brokerages meet SEBI to present a united front against the market regulator’s proposal to sharply reduce brokerage fee caps for mutual fund transactions. The meeting, attended by over a dozen domestic and global institutional brokerage representatives, was held to communicate industry concerns over the potential fallout of SEBI’s planned overhaul of the Total Expense Ratio (TER) framework.

SEBI’s October 28 consultation paper outlined a major reform to how mutual funds account for transaction-related expenses, including a proposal to cap brokerage fees at 2 basis points for equity trades and 1 basis point for derivatives trades executed outside the TER. Any additional fees must be absorbed within the TER itself — a shift that brokerages warn could significantly compress revenue streams and reduce the scope of research-led services.

Brokerages Flag Risks to Research Quality and Profitability

According to individuals present at the discussion, brokers emphasised that the proposed fee structure could directly discourage the kind of detailed institutional research that mutual funds rely on. One participant noted, “Brokers conveyed that SEBI should encourage research instead of discouraging it through such policy tweaks.”

The concerns were clear: reducing brokerage caps would not only impact profitability but also hamper the ability of brokers to provide a wide suite of value-added services such as sectoral deep-dives, corporate access, investment strategy reports and advanced analytics.

Brokerages argued that research is a critical backbone of institutional investing — and compressing their revenue could shrink the industry’s capacity to offer high-quality insights to fund managers. This is one of the reasons why the narrative that brokerages meet SEBI has gained strong traction across the financial sector.

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SEBI Clarifies Intent: Transparency, Not Profit Impact

Regulatory sources, however, emphasised that SEBI’s intention is not to disrupt industry economics but to enhance transparency and fairness for investors.
The regulator pointed out that mutual funds must be responsible for their own research and cannot pass on double-layered costs to investors through the TER structure.

One SEBI official said, “The intent of the proposal is not to impact the profits of any entity but to ensure transparency and fairness.” The official also added that the consultation feedback so far has heavily focused on brokerage caps, while no comments have emerged on performance-based optional TER, suggesting selective industry pushback.

At a separate industry event, SEBI Whole Time Member Amarjeet Singh reiterated that the regulator supports market research but wants to eliminate hidden costs.
“Research is good for the market and investors… what we are rooting for is more transparency. We don’t like hidden costs,” he stated.

Current Trading Limits for AMCs Already Aim to Curb Conflicts of Interest

Under existing SEBI rules, Asset Management Companies (AMCs) are prohibited from routing more than 5% of their total trades through a single broker over a rolling three-month period.
If an AMC does need to breach the threshold for a non-associated broker, the fund house must justify the decision in writing and report these trades to trustees.

This regulation ensures diversity in broker usage and curbs potential conflicts of interest — safeguarding investor interests even before the proposed TER overhaul.

The new TER proposal aims to go further by reducing transaction cost leakage and ensuring a consistent fee methodology across fund houses.

Mutual Funds Also Meet SEBI to Highlight Operational Challenges

While brokerages meet SEBI to express concerns, senior officials from mutual fund houses also held discussions with SEBI Chair Tuhin Kanta Pandey on November 24.
The agenda included broader industry grievances and specific issues arising from the consultation paper.

Sources revealed that smaller mutual funds expressed concern about reduced brokerage caps impacting their participation in block deals — critical, large-volume transactions executed through brokerages to ensure confidentiality, stability, and lower market impact. Block deals often enable funds to shift large positions smoothly without triggering volatility, and any change in brokerage economics could affect the efficiency of this process.

The mutual fund industry body, AMFI, has submitted its formal response to SEBI, although the details are yet to be disclosed.

Meanwhile, based on requests from mutual fund distributors, SEBI extended the deadline for submitting feedback on the proposal.

Industry Awaits SEBI’s Final Decision in December Board Meeting

With both brokerages and mutual funds having presented their concerns, the industry now awaits SEBI’s final stance.
The regulator is expected to announce its decision on the consultation paper — including the controversial 24(b) regulation overhaul — at the upcoming SEBI board meeting on December 17.

The outcome will determine whether the regulator sticks to its proposal, revises brokerage caps upwards, or considers alternative models to balance transparency with operational viability.

For now, the financial sector remains aligned on one point: the outcome of this consultation will significantly shape the future of institutional research, fund execution practices, and overall cost structures in India’s asset management ecosystem. This is why the theme brokerages meet SEBI continues to dominate market discussions.

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