Farmer and FPO fund

SEBI charges exchanges a turnover fee on trading volumes. For agricultural commodities, SEBI deliberately charges a much smaller fee than usual — and instead of simply letting exchanges keep the saved amount, it requires that money to be redirected specifically to help farmers.

That redirected pool of money is the Farmer and FPO Fund.

SEBI Turnover Fees are ordinarily Rs 15 per Rs 1 crore of turnover (0.00015%), collected by exchanges from brokers. For agricultural commodity derivatives, this rate is reduced to just Rs 1 per crore of turnover — a substantial reduction meant to lower the cost of participation.

To pass this benefit through to the people it is meant to help, SEBI has mandated that exchanges dealing in agricultural commodity derivatives create a separate, earmarked fund into which the regulatory fee SEBI forgoes is deposited, and any income earned on investments from the fund is ploughed back into it. The fund is used exclusively for the benefit of, and to ease participation by, farmers and Farmer Producer Organisations (FPOs) in the agri-commodity derivatives market — covering purposes ranging from broker fees to warehousing charges, as set out in SEBI's framework for utilisation of forgone regulatory fees, issued on 20 March 2019.

A Farmer Producer Organisation representing wheat growers in Madhya Pradesh wants to hedge its members' produce using wheat futures but finds broker fees and warehousing charges a barrier to participation. The exchange it trades on has been accumulating the Rs 1 per crore turnover fee benefit — the gap between the standard Rs 15 per crore rate and the reduced agri rate — in its dedicated Farmer and FPO Fund since the March 2019 framework came into effect.

The exchange can draw on this fund to subsidise the FPO's broker fees or warehousing costs for its hedging activity — money that exists specifically because SEBI chose to forgo turnover fee revenue on agricultural trades and require the saving to flow to exactly this kind of participant, rather than to the exchange's own bottom line.

Chapter 9, section 9.4.3 (SEBI Turnover Fees), sets out both the standard and reduced turnover fee rates and the fund this reduction feeds, immediately after the CTT and stamp duty sections. Expect a question on the reduced agricultural turnover fee rate (Rs 1 per crore, against the standard Rs 15 per crore) and on who the resulting fund exclusively benefits.

• The fund is built from SEBI's forgone turnover fee, not from a fresh levy on farmers. It is a redirection of a reduction, not a new charge.
• Rs 1 per crore is the agricultural rate; Rs 15 per crore is the standard rate — a fifteen-fold reduction, not a rounding difference.
• The fund's use is restricted to farmers and FPOs specifically — it is not a general market development fund available to any participant class.