The SEBI has made the process of securities payout directly to the client account mandatory from October 14. This is to protect clients’ securities and to ensure that the stock brokers segregate securities of the clients so that they are not vulnerable to misuse.
Currently, the securities received in payouts are pooled by the broker and then credited to the respective client demat accounts.
As per the new proposals, the securities for pay-out will be credited directly to the respective client’s demat account by the clearing corporations. CCs will provide a mechanism for trading or clearing members to identify the unpaid securities and funded stocks under the margin trading facility.
The trading members will handle shortages arising due to inter-se netting of positions between clients (internal shortages) through the process of auction as specified by CCs. In such cases, the brokers shall not levy any charges on the client over and above the charges levied by the CC.
The proposal was discussed in the meeting of the Intermediary Advisory Committee, with the Broker’s Industry Standards Forum, and discussed with the stock exchanges, CCs, and depositories.
The implementation standards shall be formulated by the Broker’s Industry Standards Forum (on a pilot basis), under the aegis of the stock exchanges and in consultation with SEBI by August 5.
The direct payout to the client account was already facilitated on a voluntary basis by a circular dated February 1, 2001.
In the past few years, SEBI has taken several steps to safeguard investors’ securities and funds. Sebi has, for instance, addressed the matter related to client funds through the upstreaming and downstreaming of funds mechanisms. Upstreaming of all client funds received by stock brokers and clearing members to CCs has to be done in the form of cash, a lien on fixed deposit receipts, or a pledge of units of mutual fund overnight schemes.