The changes come after submissions from the Brokers Industry Standards Forum, which called for reforms to reflect current regulatory and market conditions. Sebi said the decision has been taken to improve ease of doing business for brokers and ease of investment for customers.
Under the revised framework, for trades not covered under the margin trading facility, unpaid securities will be directly credited to the client’s demat account. Thereafter, an auto-pledge will be made in favor of a separate account opened by the trading member, called “Client Unpaid Securities Pledge Account” or CUSPA. The pledge will have an “unpaid” reason and will not require any specific notification from the customer.
The broker shall also inform the client through email or SMS about the pending payment obligation and his right to sell the securities if the client does not pay. SEBI has asked trading members to frame a clear policy for handling such unpaid securities. The policy must explain the procedure, reasons, time for release or invocation of pledge of securities and liquidation. The client must be given a maximum period of five trading days from the date of payment to fulfill the payment obligation.
From WhatsApp chats to food orders: How SEBI made Rs. 144 crore stock manipulation scheme cracked
Live events
SEBI has also clarified that while such unpaid securities pledged with the broker’s CUSPA may be considered for reporting client margin collection to the clearing corporation, the broker may not give new exposure to the client based on these securities. This means that securities can support margin reporting, but cannot be used to allow additional trading limits.
The circular also specifies how additional pledged securities should be released. Brokers should check the value of pledged securities daily against the client’s ledger balance, margin obligation or other factors as may be specified by the exchanges. If the value pledged is more than allowed, the broker must release the additional securities by the next trading day.
If the client does not pay within the stipulated period, the broker may foreclose and sell the unpaid securities after giving reasonable notice. The market will be sold using the client’s unique client code. Any surplus funds remaining after settlement of the Client’s liability must be credited to the Client’s account.
A key investor protection measure is the auto-release provision. If the pledge is neither called nor released within five trading days after the payout, the depositories will automatically release the pledge at the end of the sixth trading day. Thereafter the securities will become free balance in the client’s demat account without any encumbrance.
SEBI has also barred brokers from further pledging or transferring CUSPA-pledged securities to banks or non-bank lenders to raise funds. In exceptional cases, such as lower circuit stocks with only sellers, trading suspension, holding due to surveillance or other valid reasons recognized by the market infrastructure organizations, brokers may request an extension of the pledge up to one additional calendar week.
Stock exchanges have been asked to issue operational guidelines within 30 days. Most of the amended provisions will come into force three months from the date of those guidelines, while the provisions extending pledges in exceptional cases will come into effect six months from the date of the circular.
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)
(You can now subscribe to our ETMarkets WhatsApp channel)