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.

Entity Types B/D; Depo; Exch
Reference 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; Trading; Treasury
Countries India
Products Clearing; Custody; Securities; Stock Lending
Regions AP
Rule Type Final
Rule Date 5/9/2024
Effective Date 8/2/2024
Rule Id 211485
Linked to Rule :213116
Reg. Last Update 7/5/2024
Report Section International

Last substantive update on 07/10/2024