Running accounts Settlement: New Sebi guidelines in motion from Friday

However, industry experts feel that with tighter rules, brokerages will need to have higher working capital and will involve operational risk of transferring large amounts

Starting Friday, all brokerages will have to transfer unused funds back to clients’ bank accounts under the new guidelines for settlement of running accounts issued by the Securities and Exchange Board of India (Sebi).
 

Under the new norms, account settlement has to be done on the first Friday of either each month or quarter, depending on client preference. This means funds lying with brokers will have to be transferred back to the customer account after considering end-of-day (EOD) obligations.
 

Sebi issued the new guidelines for running account settlement in July this year after consultations with stock exchanges, industry representatives, and discussion with the Secondary Market Advisory Committee.
 

In its circular, the regulator said the move was “to devise a framework to mitigate the risk of misuse of client funds”.
 

“The settlement of running account of funds of the client shall be done by the trading member after considering the EOD obligation of funds as on date of settlement across all exchanges, at least once within a gap of 30/90 days between two settlements of running account in line with the preference of the client,” said Sebi in its circular.
 

Explaining the long-term impact, brokerage firm Zerodha’s founder Nithin Kamath wrote on social media: “There will be upward pressure on brokerage rates over the next few years due to all the regulatory changes. While these changes are good in terms of customer safety, they will lead to increased working capital requirements for the broking industry.”
 

However, industry experts feel that with tighter rules, brokerages will need to have a higher working capital and will involve operational risk of transferring large amounts. Sebi has restricted brokers from using clients’ unused funds.
 

Kamath estimated that the total settlement amount may work out to around Rs 25,000 crore across the industry.
 

In case a client has any outstanding trade position on settlement day, Sebi has allowed brokerages to retain funds based on margin and in-pay obligation calculations.
 

The markets regulator had asked stock exchanges to develop an online system for effective monitoring of timely settlement of running accounts for funds and verify that excess client funds are not retained.