Sebi Proposes Changes for Unpaid Client Securities

New Delhi, Apr 24 (PTI) Markets regulator Sebi on Friday proposed a series of changes to norms governing handling of clients' unpaid securities by trading and clearing members, aimed at improving ease of doing business and strengthening investor protection.

The move comes following representations from the Brokers' Industry Standards Forum (ISF) and in view of regulatory developments such as mandatory direct payout of securities to clients' demat accounts.

In a draft circular released for public comments, the regulator has suggested revisions to the existing framework under its master circular for stock brokers, particularly provisions relating to the "Client Unpaid Securities Pledgee Account" (CUSPA).

Under the proposed changes, Sebi said that brokers may allow a funding period of up to five trading days from the payout date for clients to meet payment obligations, but can also prescribe a shorter duration as per their internal policy communicated to clients.

To enhance investor convenience, the regulator has proposed a clear timeline for release of pledge. If a client clears dues before 5 PM, the pledge would be released on the same day, while payments made after the cut-off would lead to release by the next trading day.


Further, Sebi has proposed enabling partial release of pledged securities based on daily assessment of client obligations and the value of pledged holdings, addressing gaps in the current framework.

Also, the regulator has suggested that unpaid securities, if neither invoked nor released, would be automatically freed from pledge at the end of the sixth trading day from the payout date, bringing clarity to existing timelines.

The proposal also addresses operational issues where trading members (TMs) and clearing members (CMs) are separate entities, proposing that unpaid securities be re-pledged in favour of the CM's CUSPA account if the TM has not met its fund obligations.

Additionally, Sebi has proposed provisions to deal with exceptional scenarios such as lower circuit filters, trading suspension, or other force majeure situations. In such cases, brokers can seek an extension of up to one calendar week for pledge liquidation, with further extensions permitted if conditions persist.

"However, once the constraints cease and the securities become sellable, no further extension shall be allowed. Failure to seek extension within the prescribed timeline will result in automatic system-based release of the pledged securities," the regulator suggested.

The Securities and Exchange Board of India (Sebi) has sought public comments on the proposals till May 15.