The Securities and Exchange Board of India (SEBI) has issued new guidelines mandating the direct transfer of securities to clients' demat accounts by clearing corporations. These guidelines, outlined in a circular titled "Enhancement of operational efficiency and Risk Reduction--Pay out of securities directly to client demat account," will come into effect from October...
The Securities and Exchange Board of India (SEBI) has issued new guidelines mandating the direct transfer of securities to clients' demat accounts by clearing corporations. These guidelines, outlined in a circular titled "Enhancement of operational efficiency and Risk Reduction--Pay out of securities directly to client demat account," will come into effect from October 14, 2024.
The existing practice involves brokers pooling securities received in payout and then crediting them to respective client demat accounts. However, SEBI's circular emphasizes the need to safeguard clients' securities and prevent their vulnerability to misuse.
Previously available on a voluntary basis since February 1, 2001, the facility of direct transfer has now been made mandatory.
Under the new guidelines, clearing corporations are required to provide a mechanism for trading members/clearing members to identify unpaid securities and funded stocks under the margin trading facility. Additionally, brokers will be required to open a separate demat account tagged 'Client Securities under Margin Funding Account' to hold funded stocks exclusively for margin trading purposes.
The circular specifies procedures for handling shortages arising from netting of inter-se positions between clients. In such instances, trading members or clearing members will handle shortages through auctions as specified by clearing corporations. Brokers are prohibited from levying any charges on clients beyond what has been levied by clearing corporations.
SEBI has directed stock exchanges, depositories, and clearing corporations to provide the provisions of the circular to their members/participants and make necessary amendments to relevant bye-laws, rules, and regulations. The implementation standards will be formulated by the Broker's Industry Standards Forum in consultation with SEBI by August 5, 2024.