Bank Guarantees (BGs) created out of clients’ funds
Summary
This circular prohibits Stock Brokers and Clearing Members from creating new Bank Guarantees using client funds starting May 1, 2023. It mandates the wind-down of existing such guarantees by September 30, 2023, while exempting proprietary funds from these restrictions. Stock Exchanges and Clearing Corporations are directed to monitor compliance, report data fortnightly, and ensure implementation through regulatory mechanisms.
Text
Beginning May 01, 2023, no new BGs shall be created out of clients’ funds by SBs/CMs.
Existing BGs created out of clients’ funds shall be wound down by September 30, 2023.
The provisions of this framework shall not be applicable for proprietary funds of SBs/CMs in any segment and SB’s proprietary funds deposited with CM in the capacity of a client.
Stock exchanges and clearing corporations shall take stock of the current position of the BGs issued out of clients’ funds by SBs/CMs and monitor the wind down... put in place periodic reporting mechanisms for SBs/CMs.
Stock exchanges and clearing corporations are directed to submit the following data to SEBI on fortnightly basis (starting from June 01, 2023): Collateral data...
SBs/CMs shall be required to provide a certificate, by its statutory auditor confirming the implementation of this circular. Such a certificate shall be submitted to stock exchanges/clearing corporations by October 16, 2023.
Stock exchanges and clearing corporations shall verify the compliance... evolve adequate mechanisms to address cases of SBs/CMs who do not comply with the provisions of the circular by the stipulated dates.
Given the implementation of the above measures, the provisions of following SEBI circulars shall stand modified to the extent as stated hereinabove...
The stock exchanges and clearing corporations are directed to: bring the provisions of this circular to the notice... disseminate the same on their websites; make amendments to the relevant bye-laws... communicate to SEBI, the status of the implementation... in their monthly development report.
This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
Source: SecMarx — Bank Guarantees (BGs) created out of clients’ funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.