Many traders see “exchange charges” on their contract notes but have no idea what those numbers really mean or why they differ from broker to broker for the same trade. For beginners, these layered fee structures can be confusing and hard to read. SEBI’s True to Label policy is designed to fix this. It focuses on how exchanges and other market infrastructure institutions charge brokers and how those charges are passed on to you as a client. In this blog, you will learn what this policy is, how it works in practice, how it affects your cost per trade, and how it can change trading behaviour and volumes in India’s stock market.

SEBI’s True to Label policy is a rule that ensures any charge shown on a contract note as an exchange or market infrastructure institution charge matches the actual fee set by that institution. Exchanges are expected to move towards simpler and more uniform fee structures instead of complex slab-based discounts for high-volume brokers. This reduces hidden spreads inside “exchange charges”, makes contract notes easier to understand, and can lower or stabilise trading costs. Over time, this transparency can support fairer competition between brokers and healthier participation in the stock market.

What is SEBI’s True to Label policy?

SEBI’s True to Label policy deals with how stock exchanges, clearing corporations, and depositories charge for trades and how those charges appear on your contract note. These entities are called market infrastructure institutions.

Under this policy:

Any line item labelled as “exchange charges” or “MII charges” should reflect the actual fee that the exchange or other institution has levied
Extra amounts that brokers earn must be shown under different, clearly named heads, such as brokerage or platform fees

For the official definition and the exact rules, you can refer to SEBI’s circular titled Charges levied by Market Infrastructure Institutions – True to Label

This circular explains how exchanges, clearing corporations, and depositories must structure their charges and how those charges should be recovered from end clients. It is the primary regulatory reference if you want to confirm any detail about the policy.

Why SEBI introduced this policy

Earlier, fee structures created three clear problems.

Lack of clarity for clients
Clients could not easily see how much of their money went to exchanges and how much went to brokers.
Unequal advantages
High-volume brokers got lower rates but could still charge clients as per a higher public rate.
Difficult cost comparison
Comparing total trading costs across brokers was hard even for experienced traders.

SEBI introduced the True to Label policy to:

Clean up fee structures
Reduce hidden spreads inside MII charges
Give traders a clearer view of their actual cost per trade

How True to Label works in practice

You can think of the policy in five simple steps.

Publishing of official fee schedules
Exchanges, clearing corporations, and depositories publish their transaction charge tables.
Pass-through of MII charges
Brokers receive these charges and may pass them on to clients as exchange or MII charges.
Matching label and reality
If a charge is labelled as an exchange or MII charge, it must match the official fee from the relevant institution.
Simplified fee structures
Exchanges are expected to reduce complex slab-based pricing and move to flatter fees for members.
Monitoring and correction
SEBI and the institutions monitor compliance and can step in if labels are misused.

Practical example of trading charges

Consider a retail trader who buys and sells index options regularly.

Before True to Label:

The exchange uses slab-based pricing
- The standard published rate for options transaction charges is higher
- High-volume brokers get a lower, negotiated rate
A large broker pays the lower rate to the exchange
On the client’s contract note, “exchange charges” reflect the higher standard rate
The difference becomes extra income for the broker, hidden inside the exchange charge line

After True to Label:

The exchange moves towards a uniform rate for most brokers
When the broker passes on “exchange charges”, that line reflects the real exchange fee
Any extra amount the broker wants to earn appears under
- Brokerage
- Platform fee
- Or any other clearly named item

If you want a detailed breakdown of every cost that appears on your contract note, including brokerage, exchange fees, taxes, and other levies, you can read our article on trading charges in India on the Alice Blue blog

For an active options trader dealing with constant turnover, this change can reduce or at least stabilise the exchange-related portion of their cost per trade. Over many trades, this can add up to a noticeable difference.

Key features of the policy

You can sum up the key features as follows:

True labelling of MII charges
Exchange or MII charges on contract notes must match official fee schedules.
Simpler, fairer fee structures
Exchanges move towards flatter, more uniform charges.
No hidden spreads in MII labels
Brokers cannot hide margins inside exchange charge lines.
Clearer contract notes
Clients see a cleaner split between
MII charges
Brokerage
Taxes and other levies
Alignment with SEBI’s broader transparency and investor protection goals

Advantages for traders and investors

The policy offers several advantages for traders and investors.

Clarity on cost per trade
You know more accurately how much you are paying to exchanges versus brokers.
Easier broker comparison
If exchange-related charges are standard and clearly labelled, you can compare brokers on
Brokerage rates
Platform features
Service quality
Potential cost savings
In some segments, especially derivatives, flatter and possibly lower MII charges may reduce your effective transaction cost.
Higher trust in the system
Transparent labels and consistent fee structures make traders more comfortable participating in markets.

Risks and challenges for brokers and exchanges

From the industry side, the policy creates genuine challenges.

Loss of hidden income streams
Brokers who relied on spreads inside exchange charges must now give up that revenue.
Need to redesign pricing models
Firms may need to
Adjust brokerage plans
Introduce minimum charges
Or refine product offerings to stay profitable and compliant.
Operational changes for exchanges and clearing corporations
Updating fee schedules and systems
Communicating changes to members and clients
Short term confusion
During the transition, clients may see new charge formats on contract notes and may need explanations.

Impact on volumes and market behaviour

The True to Label policy changes the cost environment, which can influence how people trade.

More accurate break-even calculations
When costs are clearer, traders can better estimate if a strategy remains profitable after charges.
Encouragement of disciplined trading
Clear costs make it easier to see how overtrading eats into profits, which may push traders towards more selective entries.
Shift in broker competition
Without hidden spreads, brokers are more likely to compete on
User experience
Tools and analytics
Education and support
Possible volume shifts between exchanges
Exchanges that adopt simple, fair charges may attract more volume in certain segments.
Over time, this can move liquidity and deepen markets where traders feel charges are transparent and fair.

If you are new to futures and options and want to understand how margin, leverage, and trading costs work together, you can go through our beginner-friendly guide to F&O trading on the Alice Blue blog

In short, the immediate effect is on cost per trade, but the longer-term effect is on how traders choose brokers, exchanges, and strategies.

Tips for beginners trading under the new rules

Beginners can use the True to Label environment to build better habits.

Read your contract note carefully for at least your first few trades.
Focus on total cost per trade, not just brokerage.
Avoid increasing trading frequency just because some charges look smaller.
Ask your broker to explain any line item you do not understand.
Follow official communication from SEBI and exchanges to stay updated on rule changes.

To learn how to read each line of your contract note step by step, you can refer to our contract note explainer on the Alice Blue blog, where we show how each charge is calculated and why it appears.

True to Label versus earlier slab-based charging

Earlier slab-based model:

Different transaction charge rates for different volume bands
High-volume brokers often paid lower per-unit fees
Clients could not easily see whether the broker was passing on the same rate the exchange charged
Room for brokers to earn hidden spreads inside exchange charge labels

True to Label model:

Stronger push towards uniform transaction charge rates
MII charges on contract notes must match official fee tables
Any broker margin must show up under separate labels, such as brokerage
Clients can more clearly see how their charges are split

Common mistakes traders should avoid

Even with clearer rules, try to avoid these common mistakes.

Ignoring contract notes and never checking the charge breakdown
Assuming all brokers now charge the same total amount
Believing that lower charges alone guarantee profits
Relying only on friends or social media for information about fees
Not asking questions when something on the contract note looks unclear

Who should care about this policy?

This policy matters to several groups.

Retail traders and investors
Active F&O traders with high turnover
Brokers and sub-brokers
Market analysts and institutions

If you trade only occasionally for long-term investing, the immediate impact may feel small, but knowing how charges work still helps you make better decisions.

If you are just starting your journey in the markets, it can also help to read our beginner’s guide to the Indian stock market on the Alice Blue blog

where we cover basic concepts like orders, risk management, and common beginner mistakes in more detail.

Conclusion

SEBI’s True to Label policy is a major step towards cleaner and more transparent pricing in India’s stock market. By making sure that exchange and MII-related charges on contract notes match the actual fees levied by those institutions, SEBI is closing the gap between what traders see and what actually happens behind the scenes. For traders, this means clearer cost breakdowns and better comparisons between brokers. For brokers and exchanges, it means adjusting pricing models and relying more on clearly named charges instead of hidden spreads. Over time, this can support fairer competition, better informed trading decisions, and a stronger market structure.

Frequently asked questions

1. What does True to Label mean in trading charges?

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2. Does this policy reduce my total trading cost?

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3. Can brokers still charge their own fees?

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4. How do I see the effect of this policy on my trades?

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5. Does this policy apply only to derivatives?

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6. Is this the same as SEBI’s mutual fund True to Label rules?

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7. As a beginner, what should I do differently now?

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Start by reading your contract note carefully. Once you know your true cost per trade, you can decide whether your trading style and frequency make sense after costs. To build a stronger base, you can also go through our beginner’s guide to the Indian stock market on the Alice Blue blog
https://aliceblueonline.com/blog/stock-market-analysis and our detailed article on trading charges in India on the Alice Blue blog
https://aliceblueonline.com/pricing for more context.