The changes aim to improve the ease of doing business for stockbrokers and the ease of investing for clients.
Under the revised framework, securities that have not been fully paid for by clients in trades outside the margin trading facility (MTF) will continue to be credited directly to the client’s demat account.
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However, they will be automatically pledged, without any specific instruction from the client, in favour of a separate “Client Unpaid Securities Pledgee Account” (CUSPA) to be opened by the trading member.
Brokers will also be required to notify clients of their payment obligations and the possibility of sale of the securities in case of default.
SEBI has directed trading members to maintain a policy for handling unpaid securities, including the process, timing and manner of pledge invocation, release and liquidation. The policy must specify a maximum period of five trading days from the payout date for clients to meet their payment obligations.
If a client fails to make payment within the prescribed timeline, the trading member may invoke the pledge and liquidate the unpaid securities after giving reasonable notice to the client. Any surplus remaining after settling the client’s dues must be credited to the client’s ledger.
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The regulator has also introduced an automatic release mechanism. If a pledge is neither invoked nor released within five trading days after payout, depositories will automatically release the pledge at the end of the sixth trading day, making the securities available to the client as free balance.
Trading members may also seek release of the pledge before the automatic release takes effect.
SEBI clarified that securities pledged in favour of a trading member’s CUSPA cannot be further pledged or transferred to banks or non-banking financial companies to raise funds.
The circular also allows trading members to seek an extension of the pledge by up to one additional calendar week in exceptional circumstances, such as lower circuit conditions, trading suspensions or other valid reasons recognised by market infrastructure institutions. Clients must be informed each time such an extension is granted.
Stock exchanges have been directed to issue operational guidelines for implementing the revised framework within 30 days in consultation with depositories.
The amended provisions relating to the pledge framework will come into effect three months after the issuance of the operational guidelines, while the provisions governing pledge extensions will become effective six months from the date of the circular.
