SEBI to Review Brokers’ UPI MDR Concerns Before Oct 15

SEBI Chairman Tuhin Kanta Pandey said on 17 September 2026 that the regulator will examine stockbrokers’ concerns over the new UPI merchant discount rate on capital market transactions, due to take effect from 15 October 2026.

What Sebi Chairman Said

Speaking on the sidelines of the NaBFID Infrastructure Conclave 2026 in Mumbai on Thursday, Pandey acknowledged that brokers had flagged genuine problems with the new charge structure.

Pandey said Sebi had noted “some important issues raised” and would “look into concerns,” acknowledging the matter needed attention.

His comments came after several brokerage firms, including Zerodha, raised objections in the preceding days over how the new UPI charge would apply to stockbroking transactions.

The New UPI MDR Rule, Explained

A Merchant Discount Rate (MDR) is the fee a bank or payment processor charges each time money moves through UPI. From 15 October 2026, a revised MDR structure applies to select UPI payments across India.

For most merchant payments above ₹2,000, the MDR is 0.4%, capped at ₹300 for transactions of ₹75,000 and above. Capital market transactions get a separate, lower rate.

Payments made toward mutual funds, securities, stockbrokers, dealers and investment advisers will attract an MDR of just 0.02% of the transaction value, with the same ₹300 cap. On a ₹1 lakh transfer, that works out to roughly ₹20. Recurring UPI mandates, such as SIP standing instructions, are exempt entirely.

Why Stockbrokers are Worried

On paper, 0.02% looks negligible. Brokers’ actual complaint is about how often the charge repeats, not its size.

Sebi’s existing rules require brokers to periodically return any client money that has not been used for trades, a practice known as the “client float.” This money moves back to the client’s bank account through UPI as well.

Zerodha co-founder Nithin Kamath flagged the problem in a social media post, noting that the rule forces this movement of money every few months and leaves brokers bearing the cost “without any incremental benefit or revenue.”

In effect, brokers could end up paying MDR twice on the same client funds once when a client adds money and again when unused money is returned without a single trade happening in between. Kamath has suggested a lower transaction cap specifically for broking-related UPI payments.

Payment processing partners working with some brokers have pointed to net banking as an alternative, since it typically carries a flat fee of around ₹8 to ₹12 per transaction, negotiated separately with banks, regardless of transaction size.

What Investors Should Know

For retail investors, nothing changes immediately. The MDR is a cost in the payment chain between brokers and payment processors, not a fee investors are billed directly, though how it plays out after 15 October will depend on what individual brokers decide.

If you invest in stocks, mutual funds or IPOs, you still need a demat account to hold these investments, and funding that account by UPI is exactly the transaction now under debate. SIP payments and other standing instructions stay unaffected, since recurring UPI mandates carry no MDR at all.

Until Sebi clarifies further, it is worth checking your trading platform or broker’s app for any update on how one-time UPI transfers will be handled once the new charge kicks in.

What Happens Next

Pandey’s comments signal that Sebi is open to revisiting the framework, but the regulator has not announced any change so far. NSE managing director and CEO Ashishkumar Chauhan has said the MDR could affect trading volumes routed through UPI in the near term, even as the impact is expected to settle over time.

With the October 15 deadline approaching, the debate now centres on whether capital-market UPI transfers need a revised cap or a specific carve-out before the rule takes effect.

Investments in the securities market are subject to market risks. This article is for informational purposes only and is not investment advice.