Stockbroker Zerodha, in response to a new directive from the National Stock Exchange aimed at curbing potential trade inducement, said it will stop sharing brokerage revenue for Demat account referrals starting Aug. 25, 2024.
What's Changing
Zerodha's move follows an NSE circular that prohibits brokers from sharing a percentage of brokerage fees with clients (in some cases with finfluencers) who refer new customers. The NSE's reasoning is that such arrangements might encourage individuals to induce referrals to trade more frequently, which could harm the interests of the customers.
"To comply with the new NSE regulations, we are ceasing brokerage revenue sharing for referrals," Zerodha said in a press release. "However, we will continue to award 300 reward points for each successful referral, which can be redeemed for various services," the brokerage said.
Why The Change
The NSE in a circular dated Aug. 14 addresses concerns over unauthorised referral schemes and emphasises that only registered and approved individuals should manage client referrals. This policy is intended to prevent potential misuse and ensure that all referral activities adhere to established rules and regulations.
“Any person referring a client to a trading member must be officially appointed as an authorised person and must comply with all regulations and codes of conduct," NSE said. This measure aims to safeguard investor interests and maintain the integrity of trading practices.
Impact And Next Steps
This regulatory shift has caused Zerodha to clear out any existing referral wallet balances greater than Rs 10. Despite the discontinuation of the brokerage-sharing aspect, Zerodha will maintain its referral program in a modified form, focusing on reward points instead.
In its blog post, the company indicated it will continue to advocate for the referral program's continuation and provide updates based on further discussions with the exchanges.
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