On 11-11-2022, the Securities and Exchange Board of India (‘SEBI’) has issued circular revising the Handling of Clients’ Securities by Trading Members (‘TM’)/ Clearing Members (‘CM’) which was introduced by SEBI Circular dated 20-06-2019, to streamline the process of handling of unpaid securities by TM/ CM and also to prevent misuse of unpaid securities. The provisions of this circular will come into force from 31-03-2023.
Key Points:
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Securities received in pay-out should be transferred to the demat account directly from the pool account of TM/CM within 1 working day.
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In case of unpaid securities, it should be transferred to the demat account by creating auto- pledge with the reasoning “unpaid” and in favour of separate account titled “client unpaid securities pledge account”.
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A communication email should be sent after making such a pledge informing the client about their funds obligation and about the right of the TM/Cm to sell such securities in case of default.
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In case the client fulfils the fund obligation within 5 trading days, the pledge will be released to the client as a free balance.
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In case of default in fulfillment of obligation within 5 trading days, the unpaid securities will be disposed of by the TM/CM and the same should be intimated to the client one trading day before the sale.
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The sale of such unpaid security should be done with a Unique Client Code (‘UCC’) of that client.
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In case of invocation, the securities will be blocked for early pay-in in the client’s demat account.
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In case the pledge is never invoked or released within 7 trading days after the pay-out, the pledge will be auto released, and the securities will be available to the client as free balance without encumbrance.
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The existing “client unpaid securities account” should wound up before 12-04-2023.
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The security under the above-mentioned account has to be either disposed of in the market or transferred to the client’s demat account. In case of default, the accounts will be frozen for debit and credit.
*Kriti Kumar, Editorial Assistant has reported this brief.
