
Zerodha Halts Brokerage Revenue Sharing for Referrals Following NSE Circular
Contents
Zerodha Brokerage Revenue Sharing
Zerodha Halts Brokerage Revenue Sharing for Referrals Following NSE Circular
Introduction
In a significant update for the financial community, particularly for those involved in referring clients to trading platforms, Zerodha, India’s largest brokerage firm, has announced that it will cease sharing brokerage income for referrals. This decision comes in the wake of a recent circular issued by the National Stock Exchange (NSE), which aims to prevent trade inducement by restricting such practices. The new rule will take effect from August 25, 2024.


The NSE Circular and Its Implications
The NSE’s circular has been designed to safeguard investors by preventing practices that may encourage unauthorized trading activities. The circular explicitly prohibits trading members from sharing brokerage income with individuals unless they are officially registered as Authorized Persons (APs) with the exchange. This move is part of a broader effort to curb unauthorized collective investments, portfolio management schemes, and other activities that promise guaranteed or fixed returns, which are often considered risky or misleading.
In the circular, the NSE emphasized, “Trading Members must ensure that their Authorized Persons are engaged only in permitted activities and are not undertaking any business disallowed under the Byelaws, Rules, Regulations, and Circulars of SEBI/Exchange.” Zerodha Brokerage Revenue Sharing
Zerodha’s Response to the Circular
Zerodha, known for its innovative and customer-friendly approach, was quick to respond to the NSE’s directive. On August 20, 2024, the company announced that it would stop sharing brokerage revenue with clients who refer new users to the platform. This policy change is set to take effect on August 25, 2024. Despite this change, Zerodha will continue to reward users with 300 points for each successful referral. These points can be redeemed against account maintenance charges (AMC) or used to access paid partner products such as Smallcase, Tickertape, Tijori, MProfit, and Quicko.
In a statement, Zerodha explained, “We will pay out all referral wallet balances greater than ₹10 and stop our referral program from August 25, 2024. However, you will continue to receive 300 reward points one time for every account you refer.”


Nithin Kamath’s Perspective
Zerodha’s founder, Nithin Kamath, also weighed in on the issue. Taking to social media platform X, he expressed his concerns about the impact of the NSE’s circular on the brokerage industry. Kamath noted that the circular could hurt business, as it restricts brokers from offering brokerage sharing as an incentive for referrals unless the referring individual is registered as an Authorized Person with the exchanges.
“The NSE issued a circular last week stopping brokers from sharing any brokerage as a referral incentive unless that person is registered as an authorized person with the exchanges. This is another one of those circulars that will hurt the business,” Kamath remarked.
The Reasoning Behind the Circular
The NSE’s primary concern with brokerage revenue sharing is the potential for trade inducement. By offering a share of the brokerage as a referral incentive, there is a risk that individuals might push their referrals to engage in more trades than necessary, purely for the financial benefit. This could lead to unethical trading practices and increased market volatility, which the NSE aims to prevent with this new directive.
Conclusion
Zerodha’s decision to halt brokerage revenue sharing for referrals marks a significant shift in the brokerage landscape in India. While the move aligns with the NSE’s goal of protecting investors and maintaining market integrity, it also raises questions about the future of referral programs within the industry. As the implementation date approaches, it will be interesting to see how other brokerage firms respond to this regulatory change and what new strategies they adopt to attract and retain clients.


FAQs
- What is the new NSE circular about?
- The NSE circular prohibits brokers from sharing brokerage income with individuals for referrals unless they are registered as Authorized Persons (APs) with the exchange.
- When will Zerodha stop sharing brokerage revenue for referrals?
- Zerodha will stop sharing brokerage revenue for referrals effective August 25, 2024.
- Will Zerodha continue to offer any referral incentives?
- Yes, Zerodha will continue to award 300 reward points for each successful referral, which can be redeemed against AMC or used for paid partner products.
- Why has the NSE issued this circular?
- The NSE issued this circular to prevent trade inducement and protect investors from unauthorized trading activities and schemes.
- What are the potential impacts of this circular on the brokerage industry?
- The circular may limit the ability of brokers to attract new clients through referral programs, potentially leading to a shift in how brokerage firms market their services.
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