New Delhi, July 3 (IANS) The Securities and Exchange Board of India on Friday said that shares allotted to investors but not fully paid for must remain in clients’ demat accounts, while brokers have a formal pledge over them until outstanding dues are cleared.
Under the revised framework, unpaid securities will be credited first to the investor’s demat account and then automatically pledged in favour of the broker through a dedicated “Client Unpaid Securities Pledgee Account” (CUSPA), the regulator said.
The move aims to enhance investor protection and align regulations with the current market structure, where securities are directly credited to investors’ demat accounts.
Brokers must notify clients by email or SMS about pending payment obligations and the possibility that the securities may be sold if dues are not settled, the regulator said.
All trading members must maintain a policy for handling unpaid securities and communicate the same to all clients prior to implementation, it added.
The policy must include clear processes and indicate reasons, manner, timing etc. pertaining to invocation or release of pledge and liquidation of unpaid securities. Such policy must indicate the maximum period within which the client must meet the payment obligation.
The maximum period shall not exceed five trading days from the pay-out date, the market regulator said.
While unpaid securities pledged to CUSPA may be considered for reporting client margin collection to Clearing Corporation, the brokers must not allow exposure on the basis of such securities to the client.
The securities will be blocked for early pay-in in the client’s demat account with the invocation of the pledge and a trail will be maintained in the broker’s CUSPA account.
“Once such securities are blocked for early pay-in in the client’s demat account, the depositories shall verify the block details against the client level obligation,” the statement said.
SEBI has also barred brokers from using pledged securities under the unpaid shares mechanism to raise funding from banks or non-banking finance companies.
If stocks are locked in lower circuits with no buyers, trading suspensions, or other circumstances, brokers are allowed to seek extensions to continue the pledge until the securities can be sold.
—IANS
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