Handling of Clients’ Securities by Trading Members(TM) / Clearing Members (CM)
Summary
This circular mandates that Trading Members and Clearing Members transfer client securities to demat accounts within one working day of pay-out. For unpaid securities, it requires the creation of an auto-pledge in a separate pledgee account instead of maintaining a dedicated unpaid securities account. The previous 'client unpaid securities account' mechanism is abolished by April 15, 2023, with new rules effective from March 31, 2023.
Text
All the securities received in pay-out, shall be transferred to the demat account of the respective clients directly from the pool account of the TM/CM within one working day of the pay-out.
With regard to the unpaid securities... such securities shall be transferred to respective client’s demat account followed by creation of an auto-pledge... in favor of a separate account titled – “client unpaid securities pledgee account”, which shall be opened by TM/CM.
After the creation of pledge, a communication (email / SMS) shall be sent by TM/CM informing the client about their funds obligation and also about the right of TM/CM to sell such securities in event of failure by client to fulfill their obligation.
If the client fulfills its funds obligation within five trading days after the pay-out, TM/CM shall release the pledge so that the securities are available to the client as free balance.
If the client does not fulfill its funds obligation, TM / CM shall dispose off such unpaid securities in the market within five trading days after the pay-out. TM/CM, before disposing the securities, shall give an intimation (email / SMS) to the client, one trading day before such sale.
The unpaid securities shall be sold in the market with the Unique Client Code (UCC) of the respective client. Profit/loss on the sale transaction of the unpaid securities, if any, shall be transferred to/adjusted from the respective client account.
TM / CM shall invoke the pledge only against the delivery obligation of the client. On invocation, the securities shall be blocked for early pay-in in the client’s demat account with a trail being maintained in the TM/CM’s client unpaid securities pledgee account.
Once such securities are blocked for early pay-in in client’s demat account, the depositories shall verify the block details against the client level obligation in accordance with the SEBI Circular No. SEBI/HO/MIRSD/DOP/P/CIR/2021/595 dated July 16, 2021 and SEBI/HO/MIRSD/DoP/P/CIR/2022/109 dated August 18, 2022.
In case, such pledge is neither invoked nor released within seven trading days after the pay-out, the pledge on securities shall be auto released and the securities shall be available to the client as free balance without encumbrance.
Such unpaid securities pledged in client’s account shall not be considered for the margin obligations of the client.
All the existing “client unpaid securities accounts” shall be wound up on or before April 15, 2023. The securities lying in such accounts shall either be disposed off in the market or be transferred to the client’s demat account by the TM/CM accordingly, failing which such accounts shall be frozen for debit and credit.
Stock Exchanges, Depositories and Clearing Corporations shall put in place appropriate systems to ensure compliance of the provisions of this circular.
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Source: SecMarx — Handling of Clients’ Securities by Trading Members(TM) / Clearing Members (CM). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.