Brokers breathe a sigh of relief as SEBI relaxes client fund rules

SEBI has removed one layer of fund movement entirely and has also relaxed the strict cutoff time of 6 PM. Representational photo

Market regulator Securities and Exchange Board of India (SEBI) on December 12 revised its framework for transfer of client funds from brokers' accounts, to address the operational difficulties being faced by the latter.

Under the revised framework, SEBI has removed one layer of fund movement entirely and has also relaxed the strict cutoff time of 6 PM. Now, brokers are breathing a sigh of relief.

Moneycontrol had earlier reported that the regulator was receptive to brokers’ concerns on operational issues regarding client fund guidelines and some tweaks were on the cards.

"SEBI advised the industry associations to consult with MIIs (market infrastructure institutions) under the aegis of Broker’s Industry Standards Forum (ISF) and submit a proposal to SEBI so that the principle of upstreaming is complied with and operational difficulties are suitably addressed," the regulator said in a circular.

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One layer of fund movement has gone

Current practice: It requires multiple movements - from clients to USCNBA (Up Streaming Client Nodal Bank Account), from USCNBA to settlement, from settlement to clearing corporation, from CC to settlement, from settlement to DSCNBA and DSCNBA (Down Streaming Client Nodal Bank Account) to clients. This was put in place to ensure clients' funds were not misused, especially after the Karvy episode.

Revised framework: Brokers can transfer to downstream accounts directly without involving CC for payout. "Now settlement to CC and CC to settlement is not compulsory for client payout on the same day, only day-end balances need to be uploaded to CC," said Ajay Kejriwal, who heads the broking and distribution vertical of Choice group.

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Cut-off time relaxed

Current Practice: Brokers need to empty the USCNBA by 6-6:30 pm latest. Brokers would face challenges here as they could not discourage clients from transferring additional funds after 6:30 pm.

Furthermore, brokers have several upstreaming accounts with different banks. In case of any technical difficulty in one of the banks or case of payments made by gateways, the funds would not be transferred on time and the broker would be held liable.

Revised framework: The cut-off times for upstreaming of clear credit balances of clients shall be determined by the CCs in consultation with ISF. "Brokers are contemplating the cut-off time as midnight. So free funds can be upstreamed to CC once processing and payout is done," said Shrey Jain, founder and CEO of SAS Online, a discount broking firm.

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No more same-day fund payout

Current practice: Fund payout to be done on the same day. It requires brokers to de-allocate funds post-market close without detailed information on the margin used and total payout at the client level.

Revised framework: The clients may request brokers to release funds at any time during the day. "The processing of such release requests shall be as per respective risk management practices of brokers. All payment requests of the client received on a day shall be processed on or before the next settlement day," said SEBI.

The market regulator added that the revised framework has been considered as a step towards ease of doing business.