Handling of Clients’ Securities by Trading Members/Clearing Members
Summary
This circular mandates that Trading Members and Clearing Members must transfer paid client securities to demat accounts within one working day. It prohibits the pledging of client securities to banks or NBFCs for raising funds, effective September 1, 2019. The document establishes specific account structures for unpaid and margin trading securities while repealing previous permissions for lien creation. The document mandates the opening of unpaid securities accounts by August 31, 2019, and requires reporting to Stock Exchanges. It establishes monitoring mechanisms for handling client securities and prohibits pledging specific client accounts to banks or NBFCs. The circular modifies previous guidelines on running account settlement and comes into effect on September 1, 2019.
Text
Stock broker shall segregate securities or moneys of the client or clients or shall not use the securities or moneys of a client or clients for self or for any other client.
All TM/CM are required to transfer the clients securities received in pay-out to clients demat account within one working day.
In case the client does not pay for such securities received in pay-out, then the TM/CM shall be entitled to retain those securities up to five trading days after pay-out.
Where the client fails to meet its funds pay-in obligation within five trading days from pay-out day, the TM/CM shall liquidate the securities in the market to recover its dues.
Under no circumstances, shall the securities of the clients received in pay-out be retained by the TM/CM beyond five trading days and be used for any other purpose.
Such securities shall be transferred directly from the pool account of the TM/CM to the demat account of the respective client.
A separate client account titled – “client unpaid securities account” shall be opened by the TM/CM. Unpaid securities shall be transferred to such “client unpaid securities account” from the pool account.
The securities kept in the ‘client unpaid securities account’ shall either be transferred to the demat account of the respective client upon fulfilment of client’s funds obligation or shall be disposed off in the market by TM/CM within five trading days after the pay-out.
In case the clients’ securities are kept in the ‘client unpaid securities account’ beyond seven trading days after the pay-out, the depositories shall under their bye-laws levy appropriate penalties upon such TM/CM which shall not be permitted to be recovered from the client.
The securities that are bought under Margin Trading Facility, shall be kept in a separate account titled as – ‘Client Margin Trading Securities Account’.
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 authorized by the first client.
It is reiterated that the client securities received as collateral shall be used only for meeting the respective client’s margin requirement by way of depositing the same with Stock Exchange/ Clearing Corporation/ Clearing House.
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Source: SecMarx — Handling of Clients’ Securities by Trading Members/Clearing Members. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.