Securities and Exchange Board of India (SEBI)

January 7, 1993


The President/Executive Director/Secretary
Hyderabad/Madhya Pradesh/Bangalore
Cochin/Uttar Pradesh/Pune/Ludhiana/

Dear Sir,

Report of Expert Committee on Fees

This has reference to our letter Ref.No.11969 dated November 30, 1992 regarding payment of fees by member brokers of the Stock Exchanges. During the meeting of Stock Exchange Presidents with the Chairman, SEBI, certain questions were raised requiring clarifications on the calculation of turn-over for the purpose of payment of fees under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992. The Chairman, SEBI had, thereafter, appointed an expert committee to go into the various aspects on turn-over. The expert Committee has since submitted its report, a copy of which is enclosed. The recommendations of the Expert Committee have been accepted by SEBI and also by the Government of India.

I am directed to inform you that all the Stock Brokers in your Exchange may be asked to calculate the fees payable by them on the basis indicated by the Expert Committee and pay the fees in addition to payment already made, if any for the year 1992-93 to SEBI before February 15, 1993. The Brokers would have to give the break-up of turn-over indicating the basis of calculation. To the extent that such turn-over forms part of the transactions reported to the Stock Exchange, the turn-over would have to be verified by the Stock Exchanges. The member broker would be responsible for reporting the correct turn-over for transactions not reported to the Stock Exchange. I draw your attention to the provisions of Rule 4 & Regulation 10 of the SEBI (Stock Brokers and Sub-Brokers) Rules & Regulations, 1992, under which a broker is liable to be penalised for non-payment of registration fees.

Yours sincerely,


Encl : As above.




1. Chairman Securities and Exchange Board of India (SEBI) appointed a Committee to look into the question of interpretation of turnover in the context of the fees payable by the brokers under the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992. The composition of the Committee was as follows:-

1. Shri R.S. Bhatt Chairman

2. Shri N. J. Jhaveri Member

3. Shri M.R. Mayya Member

4. Shri C.B.Bhave Member-Secretary

2. The terms of reference of the Committee were as follows:

1. to examine and recommend the various types of transactions, which may reasonably be taken into account to determine the turnover of stock brokers for purposes of levy of registration fees in accordance with Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992; and

2. any other related matter.

3. The Committee held five meetings on December 8,11,14,15 and 17, 1992. The Committee carefully considered the questions raised by the various Stock Exchanges, and the replies given by the Stock Exchanges to SEBI explaining the practices followed on the stock exchanges and the practices followed by the brokers. The Committee also studied the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 framed under the Securities and Exchange Board of India Act, 1992. The Committee met brokers from the Bombay Stock Exchange dealing in Government securities, badla financiers, jobbers and brokers doing client business predominantly to ascertain their views on the different aspects of the issues involved (list of brokers at Annexure I).


1. The terms of reference of the committee require it to go into the various components of turnover. However, questions regarding reasonableness of turnover based registration fee were raised and therefore the committee would like to deal with these questions first.

2. The Webster’s New Twentieth Century (p.1973) dictionary meaning of the word “Turnover” relevant to the matter referred to the Committee is “the amount of business done during the given period of time in terms of money used in buying and selling”. The term “Turnover” has been defined to mean “the aggregate of the sale and purchase prices of securities received and receivable by the stock broker either on his own account as well as on account of his clients in respect of sale and purchase or dealing in securities during any financial year” in the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992. The committee found that the definition given in the regulations is consistent with the meaning of the word as normally understood.

3. It has been represented to SEBI that since brokers carry out business on behalf of their clients most of the time, the brokerage earned by them should be regarded as their turnover and not the purchase and sale price of the securities bought and sold. The committee considered this matter in depth and found it unacceptable for two reasons. First, the definition in the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 is quite clear and does not admit of the interpretation that the brokerage alone would constitute turnover. Even in common parlance the total volume that is the price paid or received for securities purchased or sold would constitute turnover and the brokerage together with the differential in the prices, if any, would constitute income or revenues from which profits would be derived ultimately. Secondly, it has also been represented that for income tax purposes brokerage is deemed to be the turnover and hence even for the purposes of fees payable to SEBI the same interpretation should apply. Each authority is required to interpret terms as per the enactment(s) being administered by that authority. Therefore, the Committee did not go into the question of what exact interpretation is given by the income-tax authorities.

4. The committee noted the fact that fees have been levied and collected by the Securities and Exchange Commission in the United States of America since 1935 on the basis of the total price of securities and not brokerage alone. The turnover based fees are charged every year and are being collected from 1935 on a perennial basis whereas, under SEBI Regulations fees would be payable by any broker for a period of initial five years only and thereafter a nominal sum of Rs. one thousand per annum is payable by each broker.


1. The committee considered whether the incidence of fees was so high as to give it the character of an unreasonable levy. The incidence of fees would have to be seen in the context of the income that would be derived by a broker from a certain turnover. Among the various activities that could be undertaken by a broker, the important ones are listed below:

i. trading on behalf of clients in equities and debt instruments;

ii. jobbing;

iii. badla financing

iv. taking position in different scrips as a principal;

v. underwriting;

vi. business in Government securities; and

vii. other services such as inter-corporate deposits and deposit mobilisation.

2. The committee was disadvantaged by the fact that no reliable precise data are available with regard to the income from the above activities and the turnover generated thereon. The committee has figures of turnover in the Bombay Stock Exchange, however, the break-up of the turnover related to different categories enumerated above is not available from all over the country. The committees had therefore, to rely on empirical methods. For example, while brokerage scales are fixed by stock exchanges and brokers are required to pass on the price paid by a broker on the floor of the exchange to the client , frequent complaints are received from investors that these norms are not followed. Reliable data are not available as to the magnitude of the difference between the price paid by a broker and the price charged to a client. Maximum brokerage chargeable is 2.5 percent. No data on actual brokerage is available because a trading practice has evolved over the years that contract notes are issued showing a consolidated amount payable and receivable and brokerage is not indicated separately. The badla financing rates vary between 20 to 50 percent per annum. Jobbing differences vary widely across scrips, there are no ceilings on such differences. Functions like underwriting, collection of deposits, etc will not result in trading turnover but would contribute to income. However, taking into account different factors the committee has, therefore, assumed that even at a conservative estimate gross income of one percent on the turnover (as defined in the Regulations and as mentioned above) would not be an unfair assumption.

3. The committee has worked out examples to illustrate the extent of incidence of registration fees payable by brokers with a turnover of Rs.1 crore, Rs. 10 crores and Rs. 100 crores. The table below illustrates the figures.

S.No. Turnover
Registration Fees
1 1 1,00.,000 5,000
2   10  10,00,000  14,000
3  100 100,00,000  1,04,000

3. The fees would be an expense and hence tax deductible. Moreover, the fees are to be paid for a period of five years only. Taking these factors into consideration and even if fifty percent of gross income is assumed to contribute to expenses at lower levels of turnover, the committee finds that the incidence of registration fees is not in any way unreasonable. If the turnover increases, the expenses would not rise in the same proportion and the proportion of fees may get reduced further.

4. The committee was, therefore, of the opinion that the concept of `turnover’ based fees was not new. It was also fair and equitable in the sense that brokers with larger business paid proportionately higher fees and the incidence of fees was just.


4.1 Representations have been received by the Securities and Exchange Board of India regarding certain types of transactions where ‘turnover’ as defined may lead to unfair levy of fees. The views of the committee on these are listed below. No clarification regarding turnover relating to purchase and sale which results in delivery in the same settlement has been sought. Since the committee considers the inclusion of such turnover and calculation of registration fees thereon reasonable this aspect of turnover is not discussed below.

Jobbing :

1. A question has been raised whether “jobbing” would form part of the term “turnover” or not. The reasons given for exclusion or for special treatment of jobbing transactions are summarised below:

2. Jobbing by its very nature is not undertaken on behalf of a client. The jobber takes a position in the scrip himself with each transaction and tries to liquidate his position at the end of the day.

3. No brokerage is earned by the broker when he performs the jobbing function.

4. On account of the nature of his function a jobber’s turnover is double because he must have a sale for every purchase and a purchase for every sale.

5. A broker may lose money in jobbing just as he may earn on account of the jobbing difference.

4.2 While it is true that a jobber may earn no brokerage during jobbing, it is also a fact that there are no ceilings on jobbing differences. Moreover, in India there is no compulsion for a jobber to make market continuously nor is it necessary for any broker to act as a jobber. It is entirely on the basis of market forces and of his own volition that a broker may choose to make market in any scrip. The committee, therefore, was of the opinion that unless the losses in the jobbing function were adequately covered by larger profits to establish a proper risk reward relationship, brokers would not undertake jobbing function. The committee was also told that no authentic data on the profits or losses made in the jobbing function in relation to turnover was available.

4.3 The committee also considered the fact that by its very nature jobbing turnover would result in double counting because as represented to the committee every sale by a jobber must be offset by him by a purchase and vice-versa. However, it is found that the jobbing transactions are not separately identified by the stock exchanges or the brokers in their reporting system. Thus unless some criterion is laid down it will not be possible for any entity to properly define the transactions that could be labelled as jobbing transactions. The committee recommends that all transactions which are squared off on the same day and which have not been undertaken by the broker on behalf of clients should be classified as jobbing transactions. For the purpose of calculating turnover only the sale side of these transactions should be taken into account. Considering the risk involved in jobbing the committee further recommends that scale of fees may be adopted as one two hundredth of one percent of the jobbing turnover calculated in the above manner.

Carryover – Renewal Or Badla Transactions :

1. Another question relates to inclusion of transactions which are in the nature of renewal (badla or carry over in ‘A’ scrips and renewal in ‘B’ scrips) into the next settlement period. When the two parties to a transactions are not in a position to meet their commitments in the same settlement or are desirous of carrying their transaction into the next settlement, they achieve this in two different ways. They would enter into offsetting transactions (a buying broker entering a sale and a selling broker entering a purchase) for the current settlement and new transaction for the next settlement so that their liability to deliver that security and the right to receive that security would be identical and in effect no securities may change hands even though net payment of money may be involved because the offsetting transaction is not entered at the same rate as the original transaction. This method is employed because it is not legally permissible to carry over contracts to the next settlement except in specified shares.

2. In the case of specified shares the method of “badla” is employed. In this case a badla financier steps into the shoes of a buyer. This is achieved by the badla financier buying the securities from the original buyer in the current settlement and selling them back in the subsequent settlement. The original buyer does not thus either receive or deliver securities in the current settlement because he is entitled to receive and deliver identical number of securities. He would however have to make payment or may receive payment because the transaction with the badla financier may not be at the same rate as with the original seller. The badla financier would receive delivery of the securities from the original seller. The original seller in turn who would receive payment from the badla financier instead of the original buyer. For the next settlement the badla financier becomes the seller of identical number of securities and the original buyer becomes the buyer again.

3. The committee also noted the point made by some of the brokers who met the committee that renewal of transactions has to be carried out many times on account of the fact that the companies take unduly long in transferring the shares. This results in delay on the part of the seller to deliver the securities. It is true that it is not correct on the part of the sellers to sell the shares after having sent them for transfer and before receiving them back from the company. The committee is, however, seriously concerned by the delays reported on the part of the companies and would urge SEBI and the stock exchanges to take such steps as necessary to ensure that shares are transferred in the ordinary course of the business that takes place within the stipulated time.

4. The reasons put forth for a different treatment of renewal, badla or carry-over transactions in the calculation of turnover are as follows:

i. Carry over or badla transactions are merely devices used by brokers to postpone their liabilities to a subsequent settlement. They inflate the turnover figures but in reality they are not fresh transactions. If a transaction is carried forward say for ten settlements, the turnover will go up twenty times even though it represents just one transaction which is being fulfilled at a later date.

ii. No brokerage is earned for renewal whereas for carry forward or badla a small carry forward charge is levied.

5. The committee noted that the performance of contracts in “B” scrips was expected to result in delivery in the same settlement period. A market practice has, however developed on account of which extension beyond one settlement is obtained. Since the net delivery position was being worked out at the end of the settlement, the extension did not always take place among the original parties to the contract and thus technically this was treated to be a new transaction. The Stock Exchange do not and cannot keep track of the original contract renewed from time to time. The position is identical for ‘A’ scrips except that extension is allowed upto a period of 90 days. Again since no record is available with reference to the original transaction it is not possible for exchange authorities to determine the period for which transactions on an average are indeed carried forward.

6. The Committee is, therefore, unable to examine even empirically as to how many times a transaction is indeed carried forward. The committee, however, appreciated the fact that the modality for carrying forward a transaction is such that a transaction is entered in the current settlement for offsetting the effect of the transaction which is sought to be carried forward and a reverse transaction is entered for the next settlement. Thus two entries are necessitated. The committee appreciated the fact that the turnover figure would thus double the volume. The committee therefore recommends that such transactions may only be counted once in each settlement, the reverse transaction being ignored for the purpose of calculating the turnover. The committee was informed that on some stock exchanges like the Bombay Stock Exchange renewal in the ‘B’ scrips is effected without making the offsetting entry in the earlier settlement. In such cases the entire turnover would be taken into account including renewal transactions for subsequent settlements.

7. It was argued before the committee that even though badla charges are on an annualised basis, the turnover would get added on a fortnightly basis. Even if this be true since no transactions can be carried forward beyond a period of 90 days, the maximum registration fees leviable on one particular badla transaction would not exceed 12 paise per Hundred Rupees. Considering the badla charges, the committee noted that even this amount of 12 paise is relatively smaller in proportion to turnover.

 Underwriting and collection of deposits

The committee also considered the question of including the underwriting collection of deposits and inter corporate deposits, in the turnover figures of brokers, It was decided that such business should not be included in the turnover because the definition given in the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Rules and Regulations, 1992 does not envisage such inclusion and many other entities in the same nature of business are not required to pay fees of similar nature.

Trades put through on other exchanges

The committee considered the question raised by some exchanges regarding the orders placed by brokers of those exchanges on brokers of other stock exchanges for sale or purchase of securities. The issue raised was whether such turnover would be included in the turnover of broker or not. The Committee appreciated that in such transactions involving two brokers of different stock exchanges there would be two different situations. In the first, the broker from one exchange may merely be buying or selling securities through the broker of another exchange because on his own exchange the market for that security does not exist. In such a case he would be working like a sub-broker of the main broker who would be putting this transaction through his own exchange. The Committee was of the opinion that such a transaction needs to be included in the turnover to be determined for calculation of registration fees of the main broker only. The other type of transaction would be arbitrage transaction where the broker of one exchange may place an order for purchase or sale of securities with the broker of another exchange in order to take advantage of the price differential for the same scrip on the two exchanges. In such cases, the transactions would be recorded on both the stock exchanges and therefore it would only be proper that this forms a part of the turnover of both the brokers.

Government securities

The Committee considered the question of including the turnover of the Government securities in the total turnover of a broker. It was reported to the Committee that the volume of transactions in Government securities is very large and on account of such volume the brokerage paid by the institutions is in percentage terms ranging often between 0.02-0.05 percent. In view of this, the Committee was of the opinion that the turnover of Government securities should be calculated separately and on this turnover registration fee of One Thousandth of one percent may be charged rather than One Hundredth of one percent charged on any other turnover. If PSU bonds and units are traded in the same manner the concessional registration fee of One Thousandth of one percent of turnover should be charged.

Transactions off-market and not reported to stock exchange

The committee was also informed that the brokers are allowed to net out transactions in their offices if for the same scrip they have a buying client as well as selling client. Brokers are also expected to inform the exchange the purchases or sales made by them as principals. However, the Committee was told that as per the market practice such transactions are not fully reported to the stock exchanges. The Committee felt that merely because such transactions are not reported to the stock exchanges, they cannot be excluded from the broker’s turnover. The Committee, therefore, recommends that such transactions should form part of the broker’s turnover for calculation of registration fees.


The committee concluded that using turnover as the basis of payment of registration fees was a well established practice in a country like the US and that it was a fair basis.

The committee concluded the incidence of fees was not unreasonable.

The committee recommends that for jobbing transactions identified and included in the turnover as proposed in the report, the scale of fees may be reduced to One Two Hundredth of 1 percent.

The committee recommends that in the case of carry forward renewal or badla transactions the off-setting entries (as clarified in the report ) made by the exchange may not be counted as part of the turnover. However, in those exchanges where such off-setting entries are not made the question of any exclusion from turnover will not arise.

For Government securities and PSU bonds and units traded in the similar manner, the turnover may be calculated separately and a registration fee of One Thousandth of one percent may be charged on such turnover rather than the present scale of One Hundredth of one percent.

If brokers are carrying out transactions in securities without reporting these to the stock exchanges those transactions would be taken into account for the purpose of turnover and the individual broker would be responsible for reporting such transactions for payment of registration fees. Stock exchanges would ensure that registration fees are properly calculated and paid to the Securities and Exchange Board of India.

The trade put through on other stock exchanges would be included in the turnover on that exchange.

The activities such as underwriting and collection of deposits would not be taken into account for the purpose of calculating the turnover of the brokers.

Shri R.S. Bhatt

sd/- sd/-
Shri N J Jhaveri Shri M. R. Mayya
(Member) (Member)

Shri C.B.Bhave
Date : 18th December, 1992
Place : Bombay


Members who met the Expert Committee set up by SEBI on 14th December 1992

1. Shri H. K. Shah

2. Shri Dilip Mohan Hemchand

3. Shri Kirit Govardhandas Bhagwandas

4. Shri Arvind M Shah

5. Shri Madanlal Dalmia

6. Shri Brijmohan Sagarmal

7. Shri H M Kothari

8. Shri Asit C Mehta

9. Shri Bhagirath Merchant

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