SEBI Mandates Pay-Out Of Securities Directly To Clients’ Demat Account

SEBI has specified various processes for handling clients’ securities with regard to pay-in and pay-out of securities through Master Circular for Stock Brokers dated May 22, 2024. Currently, the securities received in payout are pooled by the broker and then credited to the respective client demat accounts. In this regard, direct payout to client was facilitated on voluntary basis vide circular SMDRP/Policy/Cir-05/2001 on February 01, 2001. However, SEBI has issued a circular dated June 05, 2024 bearing No. SEBI/HO/MISRD/MIRSD-PoD1/P/CIR/2024/75 for mandating direct payout to the client’s demat account. The said provisions shall come into force with effect from October 14, 2024 and the implementation standards thereof shall be formulated by the Broker’s Industry Standards Forum (on a pilot basis) with consultation from stock exchanges and SEBI by August 5, 2024. Pursuant to extensive discussions with concerned stakeholders including stock exchanges, clearing corporations and depositories, the Securities and Exchange Board of India (SEBI) has inter alia decided that:

1. the securities for pay-out shall be directly credited to the demat account of the clients by respective clearing corporations;
2. clearing corporations shall provide a mechanism for Trading Member (TM)/Clearing Members (CM) to identify the unpaid securities and funded stocks under the margin trading facility;
3. paragraph 45 of SEBI (Master Circular for Stock Brokers), 2024 shall be applicable with regard to unpaid securities and paragraph 4.19 thereunder pursuant to amendments shall be applicable as regards funded stocks under the margin trading facility. The amendment thereto requires for funded stocks held by the TM/ CM under the margin trading facility to be held by the TM / CM only by way of pledge.  For this purpose, the TM / CM shall be required to open a separate demat account tagged ‘Client Securities under Margin Funding Account’ in which only funded stocks in respect of margin funding shall be kept/ transferred, and no other transactions shall be permitted.  Such funded stocks shall be transferred to respective client’s demat account followed by creation of an auto pledge (i.e., without the requirement of specific instruction from the client) with suitable reason, in favor of ‘client securities under Margin Funding Account;

In case of shortages arising due to inter se netting of positions between the clients, the following measures are to be undertaken to streamline the processes of handling such shortages across the market:

1. TM/CM shall handle such shortages through the process of auction as specified by the clearing corporations;
2.  In such cases, the brokers shall not levy any charges on the client over and above the charges levied by the clearing corporations.