The stock exchanges are a bit vague on the question: Can securities held in ‘client unpaid securities account’ be pledged with Clearing Corporations or transferred to Clearing Member for taking up fresh exposure?
Capital and commodity market regulator Securities and Exchange Board of India (SEBI) is upset with stock exchanges about their communication relating to clients securities, sources told Moneycontrol. The regulator feels that the communication is misleading.
The regulator is facing operational challenges while inspecting brokers’ books for the handling of client securities because the regulator and the stock exchanges appear to have a different interpretation of the rule.
Brokers whom Moneycontrol spoke to say they are following the rule as mentioned by the stock exchanges in their FAQs (Frequently Asked Questions), ruling out any discrepancy with SEBI norms by using client securities for their margin requirement.
The SEBI circular said that securities which have not been fully paid for by clients will be kept in a ‘client unpaid securities account’ maintained by the trading/clearing member.
The securities kept in the ‘client unpaid securities account’ shall either be transferred to the demat account of the respective client when the full payment has been made, or sold in the market by TM/CM within five trading days after the due pay-in date. The unpaid securities shall be sold from the Unique Client Code (UCC) of the respective client. Profit/loss on the sale transaction of the unpaid securities, if any, shall be transferred to/adjusted from the respective client account.
However, in their FAQ, stock exchanges said: "Member may transfer the unpaid client securities from pool/unpaid securities demat account to client’s demat account in accordance with its risk management policy. Such policy shall be duly approved by its board (in case of corporate trading member), partners (in case of partnership firms) or proprietor (in case of sole proprietorship firm) as the case may be and informed to the clients".
The stock exchanges are a bit vague on the question: Can securities held in ‘client unpaid securities account’ be pledged with Clearing Corporations or transferred to Clearing Member for taking up fresh exposure?
The SEBI circular stated, “A) For the purpose of providing the margin trading facility, a stock broker may use own funds or borrow funds from scheduled commercial banks and/or NBFCs regulated by RBI. A stock broker shall not be permitted to borrow funds from any other source. B) The stock broker shall not use the funds of any client for providing the margin trading facility to another client, even if the same is authorised by the first client.”
As per the FAQ of stock exchanges, only free and unencumbered securities that have fully paid by the client can be pledged with the clearing corporation or transferred to the clearing member.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
