Zerodha's founder and CEO said on Thursday that the new account settlement process would lead to upward pressure on brokerage rates over the next few years due to regulatory changes.
Every first Friday of the month, all brokerages must transfer unused funds back to the customer's bank account as part of the new account settlement AS process, he said.
Account settlement has been spread across a quarter until now. The idea of doing this in one day is another way to test if brokers are misusing client capital in any way. Kamath said that the changes will lead to increased working capital requirements for the broking industry, and will be good in terms of customer safety.
He said that there were some issues that the broking industry might have to deal with as a result of new regulatory changes.
Large amounts of money can be sent in one single day.
On Monday after AS, there was a higher working capital requirement.
There is a higher working capital.
For example, payment gateways settle funds with brokers on T 1. If a broker allows you to trade instantly with funds transferred using a payment gateway PG, the broker's own capital is blocked. On Monday after AS, more funds could be transferred to trade using PG, he said.
If the broker allows buying stocks with proceeds from stocks sold immediately, the broker's own funds will be blocked until the exchange settles by T 2 days. The billionaire broker added that this will add up, even though it isn't directly related to AS.
A new guidelines on the settlement of accounts of clients' funds lying with stock brokers was issued by the capital markets regulator Sebi in July 2022.
The rules require stock brokers to reverse the unutilised funds lying in clients' trading accounts at least once within a gap of 30 or 90 days between two settlements of running accounts, as per the preference of the client.
For clients who have not done any transaction in the past 30 days, funds will be returned to the client within the next three working days irrespective of the date when the running account was previously settled.
Kamath said that the AS regulation is unique to India. Banks can hold unused funds for working capital requirements, but they can also use them for unused funds for working capital requirements in most countries. After all the regulatory changes, client funds can only be used for that customer's trades in India.
He said that brokers in the US can offer 0 brokerages because they can use customer funds for working capital, earn through payment for order flow, and by lending customer securities. All this isn't allowed in India, and rightly so.
If your Zerodha account balance reduces or you receive funds in your bank this Saturday, you know why, he said.