Sebi extends deadline for direct pay out of securities to client account to November 11

The direct payment system is being introduced to protect securities of clients from misuse.

Markets regulator Sebi on Thursday extended the deadline to implement system mandating the direct pay-out of securities to clients' demat accounts to November 11.

This rule was originally set to take effect on October 14.

In a circular issued on October 10, the Securities and Exchange Board of India (Sebi) stated, "In this regard, the final operational guidelines/implementation standards were to be issued by CCs to the market by August 05, 2024. However, the said guidelines were issued by CCs at the end of August 2024 on account of extensive consultation in Brokers’ Industry Standards Forum (Brokers’ ISF). Further, based on the review meeting held by SEBI with MIIs and based on representation received from Brokers’ ISF, it has been decided that the circular shall come into effect from November 11, 2024, in order to ensure smooth implementation of pay-out of securities directly to the client’s demat account, without any disruption to the markets players and investors."

Under the direct-payout system, the clearing corporations (CCs) will directly transfer the securities to the investors' account. Under the current system, the securities are pooled at the brokers' end, from where the securities are transferred to the client's account.

The direct-payout system was announced by the regulator through a circular issued on June 5, 2024. This system was introduced to "to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse". Thus, the system of pooling of the securities by the brokers will be stopped.

On October 10, Sebi also issued a circular changing the timelines for securities payout under T+1 settlement cycle to enable direct payout system.

Also read: Sebi extends securities-transfer timeline under T+1 to enable direct payout

With this, the securities will be credited to the investors' demat account on on the same trading day instead of one working day from the receipt of pay-out from the exchange, said the circular issued by Sebi on October 10. That is, the securities will be credited to the client's account on the very day that the exchange makes the pay out (T+1) and not on T+2, which has been happening under the current system with a few brokers since they have been given an additional grace period of 24 hours from T+1 to do the payout.