Dear Business Associates,
- In order to protect clients’ funds and securities, The Securities Contracts (Regulation) Act, 1956 and Securities and Exchange Board of India (Stock-Brokers) Regulations, 1992 specifies that the stock broker shall segregate securities or moneys of the client or clients or shall not use the securities or moneys of a client or clients for self or for any other
- Further, the following circulars were issued by SEBI from time to time detailing the operational modalities with respect to handling of client’s funds and securities by stock broker (hereinafter referred to as ‘Trading Member /Clearing Member’ or TM/CM):
a) Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993:
In terms of clause 2 of the circular SEBI had inter alia specified that “it shall be compulsory for all member brokers to keep separate accounts for client’s securities and to keep such books of accounts, as may be necessary, to distinguish such securities from his/their own securities. Such accounts for client’s securities shall, inter-alia provide for the following:-
- Securities fully paid for, pending delivery to clients;
- Fully paid for client’s securities registered in the name of Member, if any, towards margin requirements
b) SEBI Circular No. MRD/DOP/SE/Cir – 11/2008 dated April 17, 2008:
In the said circular, SEBI had inter-alia specified that ‘brokers should have adequate systems and procedures in place to ensure that client collateral is not
used for any purposes other than meeting the respective client’s margin requirements / pay-ins. Brokers should also maintain records to ensure proper audit trail of use of client collateral.
c) Circular no. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 and Circular no. CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June 22, 2017:
In the said circulars, SEBI had specified that “stock brokers shall not grant further exposure to the clients when debit balances arise out of client’s failure to pay the required amount and such debit balances continues beyond fifth trading day, as reckoned from the date of pay-in, except in accordance with the margin trading facility provided vide SEBI circular CIR/MRD/DP/54/2017 dated June 13, 2017 or as may be issued from time to time”
d) Circular No. SEBI/HO/MRD/DP/CIR/P/2016/13 dated December 16, 2016:
In the said circular, SEBI had specified that “the member shall transfer securities from pool account to the respective beneficiary account of their client within 1 working day after the pay-out day. The securities lying in the pool account beyond the stipulated 1 working day shall attract a penalty at the rate of 6 basis point per week on the value of securities.”
Therefore, in terms of the above provisions, all TM/CM are required to transfer the clients securities received in pay-out to clients demat account within one working day. In case the client does not pay for such securities received in pay-out, then the TM/CM shall be entitled to retain those securities up to five trading days after pay-out. Further, where the client fails to meet its funds pay-in obligation within five trading days from pay- out day, the TM/CM shall liquidate the securities in the market to recover its dues. Under no circumstances, shall the securities of the clients received in pay-out be retained by the TM/CM beyond five trading days and be used for any other purpose.
For more details, Click on below Link
SEBI Circular: Handling of Clients’ Securities by Trading Members/Clearing Members