Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs)
Summary
This circular mandates the upstreaming of all client funds received by stock brokers and clearing members to clearing corporations on an end-of-day basis. It establishes specific mechanisms for upstreaming via Fixed Deposit Receipts or Mutual Fund Overnight Schemes, including strict conditions for lien and pledge creation. The document also defines new bank account nomenclatures for fund flows and sets cutoff times for upstreaming and downstreaming transactions. The document mandates stock exchanges, depositories, and clearing corporations to disseminate circular provisions, amend bye-laws, and submit compliance reports by August 31, 2023. It cites Section 11(1) of the SEBI Act, 1992 as the legal basis for issuing the circular to protect investors and regulate markets. Annexure-A details specific upstreaming and downstreaming procedures for fund transfers between clients, trading members, clearing members, and clearing corporations.
Text
it has been decided to require the upstreaming of all client funds received by SBs/CMs to the Clearing Corporations (CCs).
no clients’ funds shall be retained by SBs/ CMs on End of Day (EoD) basis.
SBs/ CMs may create FDRs out of clients’ funds only with those banks which satisfy the CC’s exposure norm as specified by SEBI or CCs from time to time.
Every FDR created out of clients’ funds shall necessarily be lien-marked to one of the CCs at all times.
Through this lien, CCs shall have explicit precedence on the FDR funds over every other stakeholder, including over the bank providing the FDR.
The tenure of such FDRs shall not be more than one year and the FDR should be pre-terminable on demand.
SBs/CMs shall not avail any funded or non-funded banking facilities based on FDRs created out of clients’ funds.
SBs/CMs shall ensure that client funds are invested only in such MFOS that deploy funds into risk-free government bond overnight repo markets... must necessarily be pledged with a CC at all times.
SBs/CMs shall maintain a dedicated demat account (hereinafter referred to as “Client Nodal MFOS Account”) for subscription/ redemption of MFOS units.
The said clause of master circular is being modified to include ‘Client Nodal MFOS Account’ as sixth category of permissible demat account...
The nomenclature of all such accounts shall be changed to either of the following two categories... Up Streaming Client Nodal Bank Account (USCNBA)... Down streaming Client Nodal Bank Account (DSCNBA)
Funds received on a given day by SBs shall be transferred to CMs, and by CMs to the CC any time during the day, but not later than the respective cutoff times.
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Source: SecMarx — Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.