How do Sebi’s new rules on settling accounts with securities brokers affect you?

The Securities and Exchange Board of India (Sebi) has amended the rules governing the settlement of current accounts of client funds deposited with their respective securities brokers.

The new guidelines will apply from October 1, 2022.

In a circular dated July 27, 2022, Sebi said that current account settlement of customer funds will be made by the trading member “after taking into account the end-of-day obligation (EOD) of the funds on the date of settlement in all exchanges on the first Friday of the quarter (i.e. April-June, July-September, Oct-December, January-March) for all customers.”

Sebi further clarified that if the first Friday of the quarter is a holiday, then “this settlement will take place on the preceding trading day.”

The market regulator also said that if a customer has opted for a monthly settlement process, then “their current account will be settled on the first Friday of each month.” Additionally, “If the first Friday is a holiday, then this settlement will occur on the preceding trading day.”

Snehal Kathrani, Group Head, Compliance and Legal, Prabhudas Lilladher, a financial services firm, said: “Current account settlement for securities has been halted via the SEBI circular dated June 20, 2019 and as a result the circulars previous notices and this circular issued are now applicable for the current account settlement of the client’s “funds” only.

What is the difference between the new decision and the previous one?

Tejas Khoday, CEO of FYERS, a Bangalore-based discount brokerage, explained that “if a client added funds on July 28, in the previous set of rules, unused funds had to be transferred to the bank account on 30th day”.

“With the new rule, unused funds must be returned to the customer’s bank account on the first Friday of the following month. This circular replaced the previous set of rules, which were specific to each client’s unused funds. Now payments have to be processed by brokerages based on fixed days of each month/quarter,” Khoday added.

How does this new decision affect daily trading operations?

Khoday added that retail investors account for 40% of the exchanges’ gross turnover. Thus, “single-day mass payments by all brokerages can impact market-wide liquidity.”

Kathrani said that this new regulation will create a more transparent and accurate payment system on the side of brokers. However, “investors may lose the immediate opportunity of margin requirements, and to obtain the margin limits, the client would need to transfer the funds, which could take a few minutes.”

“On the stockbroker side, smaller stockbrokers would have to keep funds ready for payout on the first Friday of the quarter/month. There would also be procedural changes to adhere to this change,” Kathrani added.

Dolores W. Simon