In light of a recent consultation paper floated by capital markets regulator, Securities and Exchange Board of India (Sebi), Zerodha founder and chief executive Nithin Kamath said that regulations made for a few people who are misselling can potentially hurt the livelihood of the entire referral industry. Kamath, on the company’s community platform TradingQnA, said Sebi’s consultation paper is in the right direction and will “disallow any registered intermediary with SEBI to associate in any way with anyone who is acting like an advisor or analyst without being registered”. However, he added that “the solution to this isn’t as easy if you think of the overall structure of the capital markets”.
In a consultation paper on August 25, Sebi introduced a proposal to limit interactions between its regulated entities and unregistered ‘finfluencers’.
“As I mentioned earlier, the broking industry has tens of thousands of people who rely on introducing customers as sub-brokers, APs (authorised persons), remisier etc., partnered with over 200 retail brokers for a living. Any regulation made for a few people who are misselling, overselling, etc., can hurt the livelihood of this entire industry and sector that depends on revenue from introducing customers to brokers, he said.
Kamath, who founded one of India’s largest stock brokerage firms, also added that a majority of referral customers on its platform are “from individual customers and partners who are not the finfluencer types”. He is also part of the advisory committee at Sebi.
Financial Influencers or finfluencers are under stress from Sebi amid growing cases of fraud and incorrect advice. The registered entities are expected to not have any direct or indirect association whether monetary or non-monetary with such influencers.
Validating P&L
As a part of the community post, Kamath also added that at present Zerodha does not track any individual customer’s profitability to validate their claims.
“Today, we don’t track any individual customer’s profitability; ideally, we don’t want to get into this. If someone is making any P&L claims, I don’t think we can get into the business of validating such claims, This is why we launched the verified P&L feature,” added Kamath.
The Verified P&L feature on its platform allows users to share their profit and loss report publicly.
“If someone is trading at Zerodha and showing a certain P&L screenshot or video, you can ask for a verified P&L link updated to the latest date. There is no way to manipulate this. Everything else that is a screenshot or video of P&L can be tampered with at Zerodha and any other broker, and hence can’t be trusted,” said Kamath, as a way to curb misinformation.
He added that the right way to address the issue is what has been suggested in Sebi’s consultation paper, which is to “plug that payout” of individuals acting like an advisor or analyst (RIA, RA) without being registered with SEBI and earning indirectly.
