In a move to prevent misuse of unpaid client securities, the Securities and Exchange Board of India (Sebi) has issued new guidelines for brokers on the pay-out of such securities. The markets regulator has directed that all securities received in pay-out will have to be transferred to the client’s demat account within one working day from the pool account of trading or clearing members.
Shares that a client wants to buy are first transferred to the broker’s account from the clearing corporations. The day a buyer receives the shares from the broker is called the pay-out date.
The regulator has asked brokers to open a separate account titled client unpaid securities pledgee account to transfer unpaid securities. The securities that have not been paid in full will be transferred to the client’s demat account followed by the creation of an auto-pledge with the reason ‘unpaid’.
The trading or clearing members (TM/CM) will have to inform the clients through email or SMS about the fund obligations and their right to sell such securities in case of failure to fulfill the obligation by the client.
“If the client does not fulfill its funds obligation, TM/CM shall dispose of such unpaid securities in the market within five trading days after the pay-out,” Sebi said in its circular.
The fresh measures announced by the markets regulator are part of its goal to completely eliminate misuse of client funds and securities by brokers.
These unpaid securities will be sold in the market with the unique client code and profit or loss on such transactions will be transferred to or adjusted from the respective client account.
TM and CM will be able to invoke the pledge only against the delivery obligation of the client after which these securities will be blocked for early pay-in.
“In case such pledge is neither invoked nor released within seven trading days after the pay-out, the pledge on securities shall be auto released and the securities shall be available to the client as free balance without encumbrance,” said Sebi.
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