Sebi proposes direct transfer of securities to client's demat account, without intermediation of broker's pool account

Axis Bank announced its January-March quarter results for fiscal 2023-24 (Q4FY24) on Wednesday, April 24, reporting a net profit of ₹7,130 crore, compared to a loss of Rs 5,728.4 crore in the corresponding period last year.

The market regulator has proposed that investors' securities be directly to their demat account.

Through a draft circular dated May 9, the Securities and Exchange Board of India (Sebi) has suggested that this be made mandatory to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse.

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This facility has been available on an optional basis since February 1, 2001. But the regulator has proposed making the direct payout of securities to the client account be made mandatory.

The proposed framework would need the securities to be credited directly to the client's demat account by clearing corporations (CCs) and for CCs to provide a mechanism for trading members/clearing members to identify unpaid securities and funded stocks under the margin-trading facility.

Margin-trading facility allows people to buy stocks by paying just a portion of the total value.

As the circular stated, to ensure that the funds of clients are not misused the regulator has already put in place a mechanism for separately upstreaming and downstreaming of investors' money. The regulator now wants to ensure that the clients' securities are also protected in the same manner.

The circular stated that the regulator had extensive discussions with the Stock Exchanges, Clearing Corporations (CCs) and Depositories in this regard. It added that the proposal was also discussed in the meeting of Intermediary Advisory Committee and with Broker’s Industry Standards Forum (ISF), which comprise industry representatives.

Then the framework has been proposed.

Deep Inder Singh, Vice President & Sector Head, ICRA said, "SEBI's proposal of mandatory Pay-out of securities directly to client accounts to fortify investor interest by further protecting client securities which are currently pooled by the broker and then credited to respective client demat accounts."

He add, "Receivables book and margin trade funding operations won't be impacted as clearing corporations shall provide mechanism for identifying unpaid securities and funded stock under margin trading facility."

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Under the framework, In case of any shortages arising due to inter se netting of positions between clients i.e., internal shortages, the following measures shall be taken to streamline the processes of handling of such shortages across the market: TM/CM shall handle such shortages through the process of auction as specified by CCs; and, in such cases, the brokers shall not levy any charges on the client over and above the charges levied by the CCs.