SEBI streamlines and automates invocation and sale of pledged shares of defaulter clients

SEBI streamlines and automates invocation and sale of pledged shares of defaulter clients

Market regulator Securities and Exchange Board of India (SEBI) has given a major procedural relief to brokers for cases of invocation of pledge and then sale of shares. The new process will make it easier for brokers to sell the defaulted client shares and recover the money.

SEBI issued a circular on Tuesday regarding the same. The SEBI circular noted, “With a view to facilitate ease of doing business as well as to safeguard the interest of investors, it has been decided to make the invocation and sale as a combined automated process.”

The SEBI circular explained the reason for this change as many times after invocation of client’s securities, pledged in favour of demat account of brokers, such invoked shares remain unsold. Hence, resulting in the accumulation of clients’ securities in demat account of the broker. This accumulation does not serve the purpose for which securities were invoked i.e. realization of moneys.

Brokers’ Industry Standard Forum had also highlighted the operational difficulties of brokers where clients sell the pledged securities. In the current process, broker has to first un-pledge the securities sold by the client and thereafter securities are delivered to Clearing Corporation by broker using physical instruction or electronic instruction or other methods.

The SEBI circular will be effective from September 05, 2025. Before that, detailed operating guidelines will be specified by depositories on or before July 01, 2025.