Settlement of Running Account of Client’s Funds lying with Trading Member

(TM)SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2023/197

This notification[1] was bought by SEBI to address operational challenges faced by brokers by extending the settlement period for running accounts of clients’ funds with Trading Members (TM) from one day to two days. This decision was influenced by concerns raised by the Broker’s Industry Standards Forum (ISF), including the likelihood of errors, delays in finalization leading to missed bank payments, and delayed instructions by brokers.

In response to ISF’s recommendation, SEBI accepted the proposal, leading to modifications in clauses 47.1.1 and 47.1.2 of the “Master Circular on Stock Brokers,” issued on May 17, 2023. Clause 47 of the Master Circular specifically addresses the settlement of running accounts of clients’ funds with TMs.

To ensure consistency and clarity regarding the dates for client account settlements, SEBI, through this Circular, mandated Stock Exchanges to collaboratively issue an annual calendar for the settlement of running accounts at the start of each financial year.

To prevent potential misuse of one client’s funds for settling another client’s running account, SEBI introduced Clause 47.1.3 to the Master Circular. This clause specifies that funds received from clients must remain in the upstreaming account, and no funds should be utilized for the settlement of another client’s account. Stock Exchanges are tasked with devising a monitoring mechanism to enforce this provision.

These modifications will come into effect from the quarterly settlement of January-March 2024 and the monthly settlement of January 2024. Stock Exchanges are required to communicate the status of the implementation of these provisions to SEBI.

[1] https://www.sebi.gov.in/legal/circulars/dec-2023/settlement-of-running-account-of-client-s-funds-lying-with-trading-member-tm-_80239.html