Will move to direct payout system for customers, says CDSL's Nehal Vora

Another change was the introduction of the Electronic Delivery Instruction (EDI) system. This system allows customers to directly authorize transactions with the depository, reducing the risk of fraud that was previously possible when brokers sent OTPs directly to customers.

SEBI has plans to implement a direct payout system to further streamline the payment process for securities, said Nehal Vora, Managing Director and CEO of Central Depository Services (CDSL). He was participating in a panel discussion at the Global Fintech Fest in Mumbai on August 29.

Till now, the payout of securities have been done by the clearing corporation, through the depository and the clearing member, before the amount would reach the customers, Vora said, adding, "Now, there direct payout happening to the customer. The trust in the system is growing even further".

Vora said that recently SEBI introduced two critical reforms on the depository side, significantly impacting the way transactions and pledging are handled in the securities market, one of them being SEBI's move towards a paperless system for account opening, transactions, and pledging. He noted that this reform has been vital, especially during challenging times such as the COVID-19 pandemic, and said, "The securities market didn't shut for a second, and I think that is really the testament of the vision of SEBI to move to a completely digitized and paperless form."

Another change was the introduction of the Electronic Delivery Instruction (EDI) system, which allows customers to directly authorise transactions with the depository, reducing the risk of fraud that was previously possible when brokers sent OTPs directly to customers. Vora said, "Now the customer will have to authorize directly with the depository. This direct customer-to-depository authorisation maintains the efficiency of B2B transactions while adding an extra layer of security."

The second reform was regarding the margin pledge system. Traditionally, he explained, shares moved from the customer's account to the broker's account under a power of attorney, leading to a lack of visibility for the customer. Now, the shares remain in the customer's account, but there is a pledge flag of the depository that comes. “This means the customer cannot resell shares that are pledged or re-pledge them to someone else, but always knows where the shares are going," he said.