IND SEBI Pay-out of Client Securities

On May 9, IND SEBI proposed rules for direct pay-out of securities.

  • IND SEBI proposed rules on pay-out of securities directly to client demat account.
  • This proposal is aimed at enhancement of operational efficiency and risk reduction.
  • Draft circular on Enhancement of operational efficiency and risk reduction - pay-out of securities directly to client demat account is placed at annexure A of consultation paper.
  • Follows IND SEBI May 2023 issued master circular for stock brokers, see #172916.
  • Background
  • Master circular for stock brokers specified various processes with respect to handling of client's securities with regard to pay-in and pay-out of securities, see #172916.
  • Currently, the securities received in payout are pooled and credited to the respective client demat accounts, while direct payout to client account is on a voluntarily basis.
  • Proposed Rules
  • Securities for pay-out shall be credited directly to respective client’s demat account.
  • Clearing corporations (CCs) shall provide mechanism for trading members (TM) and clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility, where unpaid securities shall follow master circular, #172916.
  • Revised para 41.9 of master circular re funded stocks under the margin trading facility.
  • However, the processes shall not be applicable to clients having arrangements with custodians registered with SEBI for clearing as well as settlement of trades.
  • Specifies measures for handling of shortages arising due to inter se netting of positions between clients, where TM/CM shall handle it through the process of auction specified.
  • Effectiveness
  • The comment period for this consultation closes on May 30, 2024.
  • Jun. 2024 Implementation
  • On Jun. 5, 2024, IND SEBI issued circular to implement the rules on pay-out of securities directly to client demat account, with effect from Oct. 14, 2024.
  • Follows IND SEBI May 2024 updated master circular for stock brokers, #213116.
  • The implementation standards shall be formulated by the broker’s industry standards forum (on a pilot basis), with collaboration with exchanges, IND SEBI by Aug. 5, 2024.
  • Jul. 2024 IND BSE, NSE Categorization
  • On Jul. 5, 2024, IND BSE, IND NSE said clients' demat accounts, unique client code must be categorized as primary or secondary for payout as per Oct. 2023 notice.
  • Follows BSE Oct. 2023 notice re unique client code (UCC) file structure, see #160505.
  • Trading members must update demat account details in UCC database as necessary.
  • Ensure primary / secondary indicators are correctly updated for all existing UCC details, use the modification file format for updating relevant fields.
  • All updates must be completed by Aug. 2, 2024; failure to update may result in IND BSE, IND NSE marking demat account 1 as the primary account for payout purposes.
  • Aug. 23, 2024 IND BSE Compliance Notice
  • On Aug. 23, 2024, IND BSE mentioned specific actions requested of trading members.
  • They must make relevant changes in demat account details available in UCC database, if any; ensure primary/secondary status is indicated in demat accounts for all UCC details; updating of the relevant fields can be done via the modification file format.
  • Trading members must ensure that all updates are completed by Aug. 30, 2024.
  • Aug. 30, 2024 IND NSE Compliance Notice
  • On Aug. 30, 2024, IND NSE issued specific actions in relation to client demat account.
  • It shall be mandatory tor trading members to update primary demat account in UCC database all such clients that clear and settle trades with their clearing member.
  • Trading members of capital market or F&O segment, clearing trades with other clearing member must open trading member pool accounts in both depositories.
  • Trading and clearing members need to maintain client unpaid security pledge account (CUSPA) in depository where their client has demat confidential account.
  • Further instructions related to reporting of unpaid securities and funded stocks; discontinuation of client direct pay-out facility; and the auction for internal shortages.
  • Document dated Aug. 30, 2024, received from IND NSE Sep. 3, summarized Sep. 5.
  • Sep. 2, 2024, IND ICCL Operating Guidelines
  • On Sep. 2, 2024, IND ICCL issued notice on operating guidelines for pay-out of securities directly to client demat account, and informed members of related matters.
  • Such as mapping of demat account in UCC database of exchange, opening of trading member (TM) pool accounts, opening of TM/clearing members (CMs) client unpaid security pledge account (CUSPA), as well as related reporting requirements.
  • For processing pay-out, the circular will be implemented in 2 phases, phase 1 shall be applicable from Oct 14, 2024, to Jan. 13, 2025, phase 2 from Jan. 14, 2025, onwards.
  • Sep. 10, 2024 IND NSE Delivery Report
  • On Sep. 10, 2024, IND NSE issued circular regarding pay-out of securities directly to client demat account, additional reports; relates to IND NSE circular of Aug. 30 above.
  • The Sep. 10 circular includes particulars regarding delivery report processes.
  • It provides that a separate delivery report (Delivery DPO) shall be provided with details of pay-out effected to client demat account or to clearing member pool account.
  • Nomenclature, file format, list additional standard values, sample files of new Delivery DPO is at annexure 1; as for unpaid/margin trading facility (MTF) report, revised sample files for UNPAID MTF upload, response and status file are at annexure 2.
  • Document dated Sep. 10, 2024 received from IND NSE Sep. 17, summarized Sep. 20.
  • Sep. 11, 2024 IND BSE, IND NSE Compliance Notice
  • On Sep. 11, 2024, IND BSE issued compliance notice advising trading members to strictly comply with prescribed clearing corporations (CCs) circular applicable to them.
  • Members may contact IND BSE if any clarifications regarding this notice are required.
  • On the same day, IND NSE also published a reciprocal/related compliance notice.
  • Sep. 20, 2024 Editorial Update
  • On Sep. 20, 2024, Reg-Track inserted Sep. 10 heading on provision of delivery report.
  • Sep. 30, 2024 IND NSE Operating Note
  • On Sep. 30, 2024, IND NSE issued circular on client demat account securities payout.
  • This circular was in reference to the IND NSE compliance notice issued Aug. 30 above.
  • List of error codes for UNPAIDMTF upload file, UNPAIDMTFSTATUS file in Annexure 1.
  • Document dated Sep. 30, 2024, received from IND NSE Oct. 1, summarized on Oct. 4.
  • Oct. 4, 2024 Operating Update
  • On Oct. 4, 2024, IND NSE Capital market department, Inspection department issued circulars re pay-out of securities directly to client demat account; BSE issued notice.
  • Follows IND NSE circulars issued on Aug. 30 and Sep. 11, 2024, as referenced above.
  • Also follows Oct. 1, 2024, IND NSE published a set of FAQs with respect to the operationalization of pay-out of securities directly to client demat accounts.
  • New NMASS facility for uploading UNPAIDMTF request file, downloading response file.
  • Members can upload the file from 3:30 pm on trade day to 10:00 am on settlement day; 1:00 pm will be the deadline for second settlement on multiple settlement days.
  • Super admin will have to create/modify roles for UNPAIDMTF service in NMASS.
  • UNPAIDMTFSTATUS report downloadable from Extranet, hourly downloads after trade day provisional obligation generation; final report based on uploads till 10:00 am.
  • Unsuccessful auctions for internal shortages due to non-upload, incorrect upload, or partial requests will be closed out as per the price specified by the respective CC.
  • Cost differential for close-outs due to non-reporting of internal shortage by member shall be borne by defaulting member; CC to provide report with close-out price details.
  • IND NSE to announce go live date of direct pay-out of securities in subsequent circular.
  • Oct. 5, 2024 IND CDSL Communique
  • On Oct. 5, 2024, IND CDSL issued communique on aforementioned direct pay-out.
  • Advises depository participants (DPs) of IND SEBI circular dated Jun. 5 above, also references IND ICCL circular dated Sep. 2 and IND NSE circular dated Aug. 30, 2024.
  • Outlines operational modalities for direct pay-out of securities to client demat account.
  • Mandatory trading member/clearing member pool accounts for both member types.
  • Requirements for maintaining client unpaid security pledge account (CUSPA); new rules for trading member client securities margin funding account (CSMFA); detailed process for handling direct pay-out transactions; changes to reporting of transactions.
  • Namely, in statement of transaction (SOT) and common download (COD) reports.
  • The live release date for above mentioned changes to be announced separately.
  • Oct. 8, 2024 IND BSE Enhanced Procedures
  • On Oct. 8, 2024, IND BSE issued notice to enhance operations re update indicators for demat account as per IND BSE notice dated Jul. 3, 2024 and Aug. 23, 2024 above.
  • IND BSE had marked demat account 1 as primary demat account; details of existing demat accounts in UCC database have been validated with the respective depositories.
  • All successfully validated UCCs, primary demat account details have been shared with the CCs, whereas non-validated demat account details have been provided to TMs.
  • With effect from Oct. 11, 2024, fresh UCC registration, or any modification undertaken in demat account details, shall be sent to depositories for validation.
  • All UCCs validated by depositories up to 5 p.m. shall be sent to CCs; demat account details categorized as NRIs shall not be sent to CCs until Jan. 13, 2025.
  • Therefore, payouts of NRIs shall continue to be credited as per the current process till Jan. 13, 2025; after Jan. 13, 2025, validated demat account details of NRI clients shall also be shared with the CCs for the direct payout of securities.
  • Oct. 9, 2024 IND NSE Enhanced Procedures
  • On Oct. 9, 2024, IND NSE issued a circular setting out instructions regarding the implementation of direct payout of securities to client demat account functionality.
  • Follows Oct. 8, 2024, IND NSE informed members of the above enhanced operations re update indicators for demat account as per IND NSE circulars dated Jul. 5, Aug. 23.
  • Also issued important points regarding circulars dated Aug. 30 and Sep. 2, 2024.
  • Direct payout will be implemented with effective from Oct. 14, 2024, in 2 phases.
  • Phase 1 from Oct. 14, 2024 to Jan. 13, 2025; phase 2 starts from Jan. 13, 2025.
  • In case, there is no validated primary demat account available in exchange UCC, the payout will be released to the clearing member pool account in phase 1.
  • In phase 2, UCCs which do not have validated primary demat account (except proprietary UCC) shall not be permitted to trade by the exchange, until it's validated.
  • Document dated Oct. 8, 2024, received from IND NSE Oct. 9, summarized Oct. 14.
  • Oct. 10, 2024 IND SEBI Postpone Implementation
  • On Oct. 10, 2024, IND SEBI postponed the implementation of mandated pay-out of securities directly to the client’s demat account as per circular on Jun. 5, 2024 above.
  • IND SEBI delayed the implementation date to Nov. 11, 2024, from Oct. 14, 2024.
  • IND SEBI also revised the timing re payout of securities to 3:30 PM, from 1:30 PM.
  • The securities shall thus be credited to the clients’ demat account on the same settlement day as for the receipt of pay-out from the CC, not one working day after.
  • Oct. 11, 2024 IND NSE Circular
  • On Oct. 11, 2024, IND NSE issued circular to inform members of IND SEBI's circular of Oct. 10, 2024, detailed above, regarding postponement of the implementation date.
  • IND NSE announced the revised implementation schedule shall be informed separately.
  • Document dated Oct. 11, 2024, received from IND NSE Oct. 13, summarized Oct. 16.

Regulators IND BSE; IND CDSL; IND ICCL; IND NSE; IND SEBI
Entity Types B/D; Depo; Exch
Reference Cir NSE/ISC/64509, 54/2024, 10/11/2024; Cir SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2024/136, SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/137, 10/10/2024; Cir NCL/CMPT/64464, 221/2024, 10/9/2024; Cir NSE/ISC/64423, 52/2024, Nt 20241008-32, 10/8/2024; Com CDSL/OPS/DP/SETT/2024/589, 10/5/2024; Cir NSE/INSP/64381, 73/2024, Cir NCL/CMPT/64406, 218/2024, 10/4/2024; FAQ, Cir NCL/CMPT/64297, 214/2024, 10/1/2024; Cir NCL/CMPT/ 64282, 213/2024, 9/30/2024; Nt 20240911-56, 9/11/2024; Cir NSE/INSP/63885, 63/2024, 9/10/2024; Nt 20240902-8, 9/2/2024; Cir 179/2024, NCL/CMPT/63669, 8/30/2024; Nt 20240823-55, 8/23/2024; Nt NSE/ISC/62810, 34/2024, 20240705-37, 7/5/2024; Nt 20240605-64, 6/5/2024; Cir SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2024/75, 6/5/2024; CP, PR 5/9/2024
Functions Client Money; Compliance; Financial; Operations; Risk; Settlement; Trade Reporting; Trading; Treasury
Countries India
Category
State
Products Clearing; Custody; Securities; Stock Lending
Regions AP
Rule Type Final
Rule Date 5/9/2024
Effective Date 11/11/2024
Rule Id 211485
Linked to Rule :213116
Reg. Last Update 10/11/2024
Report Section International

Last substantive update on 10/16/2024