Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs)
Summary
This circular establishes a revised framework for Stock Brokers and Clearing Members to upstream clients' clear credit balances to Clearing Corporations on an End of Day basis. It permits upstreaming via cash, liens on Fixed Deposit Receipts, or pledges of Mutual Fund Overnight Scheme units, while introducing specific nodal bank accounts for these transactions. The document also outlines eligibility criteria for using Bank Guarantees as collateral in the commodities segment and mandates monitoring mechanisms for compliance.
Text
SBs/CMs shall upstream all the clients’ clear credit balances to CCs on End of Day (EOD) basis. Such upstreaming shall be done only in the form of either cash, lien on Fixed Deposit Receipts (FDRs) created out of clients’ funds, or pledge of units of Mutual Fund Overnight Schemes (MFOS) created out of clients’ funds.
SB/CM shall receive clients’ funds in USCNBA. The nomenclature for such accounts shall be “Name of the SB/CM – USCNB account”.
Payment to clients shall be done only from DSCNBA account. The nomenclature for such accounts shall be “Name of the SB/CM – DSCNB account”.
CMs, who clear trades for other SBs, shall only use the designated bank account(s) maintained with the nomenclature “Name of the CM –TM prop account” to receive/pay proprietary funds from/to stock brokers.
All payment requests of the client received on a day shall be processed on or before the next settlement day. In cases, where the payment request is not processed on the same day, SB/CMs need to ensure that the funds of the client are placed with CC in terms of this circular.
The FDR shall be created only with banks which satisfy the CC’s exposure norms as specified by CCs/SEBI from time to time.
FDRs shall be created only from ‘Up Streaming Client Nodal Bank Account (USCNBA)’.
Such FDRs shall necessarily be lien-marked to one of the CCs at all times, and CCs shall have explicit precedence on the FDR funds over every other stakeholder, including over the bank providing the FDR.
The tenor of such FDRs shall not be more than one year and one day; and the FDRs should be pre-terminable on demand.
The principal amount of the FDR shall remain protected throughout the tenure, even after accounting for all possible pre-termination costs.
SBs/CMs shall not avail any funded or non-funded banking facilities based on FDRs created out of clients’ funds.
Existing FDRs (created out of clients’ funds and having tenor of more than one-year) created prior to June 30, 2023 shall be allowed to be grandfathered till maturity. Such FDRs at the time of renewal shall meet the conditions specified at clause 4.B.I of the circular.
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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.