MUMBAI: To help enhance operational efficiency and reduce risks to clients’ securities, market watchdog Securities and Exchange Board (SEBI) has made it mandatory from October 14, 2024, for clearing corporations to make the payment directly to the client’s account and not from the broker’s account, as it has been a prevailing practice.
Currently, a clearing corporation (CC) credits the payment of securities in the pool account of the broker, who then credits the same to their client’s demat accounts.
In March, Sebi had issued a master circular for stock brokers specifying various processes for handling of clients’ securities with regard to pay-in and payout of securities.
“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. Accordingly, form October 14, 2024, payout to the clients will be done directly by the CC and not the broker,” Sebi said in a circular.
Sebi said it has arrived at the decision after holding extensive discussions with stock exchanges, CCs and depositories as also brokers. The proposal was also discussed in the meeting of the intermediary advisory committee and with the broker’s Industry Standards Forum (ISF), which comprises industry representatives.
After these deliberations, the Sebi has decided that CCs will credit the securities for payout directly to the respective clients demat accounts. CCs shall provide a mechanism for trading members and clearing members to identify the unpaid securities and funded stocks under the margin trading facility, the circular said.
Regarding unpaid securities, the processes specified in the master circular for stock brokers, dated May 22, 2024, will be applicable, Sebi said, adding in case of any shortages arising due to intense netting of positions between clients--internal shortages—the circular said trading members or the clearing member should handle such shortages through the auction process specified by CCs.
“In such cases, the brokers shall not levy any charges on the client over and above the charges levied by the CCs,” it said.