NSE circular curbs referral programs, brokerages discontinue incentives

Several brokerage firms have discontinued their referral programs following a circular issued by the National Stock Exchange (NSE) prohibiting incentives for non-registered authorized persons (APs).

The NSE's circular, aimed at protecting investor interests, mandates that any person referring a client to a trading member (TM) must be appointed as an AP with prior approval from the exchange. This move is intended to prevent referrals from being exploited to lure clients into trading without proper oversight.

Most leading brokerages have decided to cease offering incentives to clients for referring new members. These referral programs have played a significant role in the industry's growth.

 

The NSE's circular has been met with mixed reactions from the brokerage industry. While some firms have expressed disappointment, others argue that the move may benefit established players by increasing revenue. However, experts contend that the circular will hinder customer growth, as becoming an AP involves a manual process and may not be appealing to ordinary customers.

The surge in retail participation and the market rally following the pandemic have led to a significant increase in the number of APs, or franchisees, associated with brokerage firms. Many large brokers now have thousands of APs, making it challenging to ensure compliance and oversight.

SEBI is reportedly unhappy with the way the AP business has expanded, especially given the growing number of client complaints, particularly from smaller towns. The regulator aims to deter non-serious players from entering the market and establish stronger checks and balances for AP operations.

In FY23, SEBI received a significant number of complaints against APs, including non-receipt of payments or securities and unauthorized trades.

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