Margin obligations to be given by way of Pledge/Re-pledge in the Depository System
Summary
This circular amends existing margin pledge regulations to introduce an automated combined process for invocation and sale of securities. It mandates that depositories provide functionality for 'Pledge release for early pay in' when clients sell pledged securities to avoid operational delays. The new provisions aim to prevent the accumulation of unsold client securities in broker demat accounts and ensure timely realization of funds.
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SEBI mandated that brokers accept collateral from clients only by way of 'margin pledge', with operational mechanisms provided in Annexure A of the circular dated February 25, 2020 and para 41.11 of the Master Circular.
It has come to notice that invoked shares are lying unsold resulting into the accumulation of clients’ securities in demat account of the broker, which does not serve the purpose of realization of moneys.
Brokers’ Industry Standard Forum highlighted operational difficulties where clients sell pledged securities, requiring brokers to first un-pledge securities before delivery using physical or electronic instructions.
To facilitate ease of doing business and safeguard investor interests, it has been decided to make the invocation and sale as a combined automated process by inserting clauses in Annexure A and Master Circular.
In case where client sells the securities pledged as Margin pledged securities, depositories shall provide a functionality of single instruction in the form of ‘Pledge release for early pay in’ to TM/CM wherein pledge will be released and early pay in block will be set up immediately without need for physical instruction or DDPI/POA.
In case of invocation of margin pledged securities other than mutual fund units, such securities shall be blocked for early pay-in in the client’s demat account with a trail being maintained in TM/CM’s account, subject to pay in validation.
In case of invocation of Mutual fund units not traded on exchange, depositories shall provide a functionality of single instruction in the form of ‘invocation cum redemption’ wherein invoked MF units will come to TM/CM’s account and go for auto redemption.
Where client’s trading account is frozen, invoked securities will come to demat account of TM/CM and be sold under proprietary code; TM/CM must ensure pay-in of securities is done on the same day of invocation to prevent accumulation.
Annexure A of SEBI Circular dated February 25, 2020 and Para 41 of Master Circular for Stock Brokers dated August 09, 2024 stand amended to the extent of para 4; all other provisions continue to remain applicable.
The provisions of this circular shall come into force with effect from September 05, 2025.
The detailed operating guidelines shall be specified by depositories on or before July 01, 2025.
Stock Exchanges, Clearing corporations and Depositories shall bring the provisions to the notice of their members, disseminate on websites, and make necessary amendments to Bye-laws, Rules and Regulations.
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Source: SecMarx — Margin obligations to be given by way of Pledge/Re-pledge in the Depository System. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.