The Securities and Exchange Board of India (SEBI) released a circular on Wednesday (5 June, 2024) titled “Enhancement of operational efficiency and Risk Reduction – Pay-out of securities directly to client demat account”. This is now going to be effective from October 14, 2024.
“This is to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse,” SEBI said in the circular.
Currently, brokers collect securities received in payouts and then distribute them to the corresponding client demat accounts.
Further, SEBI said, “The matter related to the funds of the clients has been addressed through upstreaming and downstreaming of funds mechanism. The matter related to flow of securities also needs to be addressed for the payout of securities. Currently, the securities received in payout are pooled by the broker and then credited to the respective client demat accounts.”
The option for direct transfer was initially voluntary from February 1, 2001. Now, it’s mandatory. Once implemented, CCs must establish a process for Trading Member TM/ Clearing Members CMs to recognize unpaid and funded stocks.
To improve the system, updates have been made to the Master Circular for Stock Brokers issued on May 22, 2024. These changes permit the establishment of a distinct demat account for stocks purchased using margin trading and for auto-pledging.
Also Read: SEBI proposes Rs 10 lakh Limit for Basic Service Demat Account (BSDA)
For Margin Trading:
Brokers must hold funded stocks solely through pledges. They’ll create a unique demat account for this purpose, preventing other transactions. These stocks will then be moved to clients’ accounts with auto-pledges.
The circular also outlines procedures for addressing shortages resulting from the netting of positions between clients.
In such cases, brokers must address shortages through auctions as per CCs’ instructions. Additionally, brokers cannot impose charges beyond CCs’ regulations.
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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before making any investment decision.
