Sebi mulls direct payout of securities to client's account mandatory

Mumbai, May 10, 2024

Synopsis
To enhance operational efficiency and reduce the risk to clients' securities, markets regulator Sebi on Thursday proposed making the process of direct payout of such securities to the client's account mandatory.

The Securities and Exchange Board of India (Sebi) on Thursday proposed to make direct payout of securities, including shares, to clients’ accounts mandatory.

The move is aimed at ensuring that securities of the clients are not vulnerable to misuse.

At present, the Clearing Corporation credits the pay-out of securities in the pool account of broking firm, which then credits them to the respective client demat accounts.

The regulator in a discussion paper on Thursday said the Clearing Corporation should directly credit securities for pay-out to the respective client’s demat account.

In 2001, direct payout to client accounts was already facilitated on a voluntary basis.

The discussion paper proposed that clearing corporations should provide a mechanism for brokers to identify the unpaid securities and funded stocks under the margin trading facility.

Funded stocks held by the broker under the margin trading facility should be held only by way of pledge. For this purpose, the broker would be required to open a separate demat account in which only funded stocks in respect of margin funding should be kept and no other transactions would be permitted. Such funded stocks would be transferred to each client’s demat account followed by creation of an auto-pledge, Sebi said.

[The Economic Times]