Sebi bans transfer of clients' securities to demat accounts of brokers

Markets regulator Sebi on Tuesday banned transfer of clients' securities to demat accounts of trading and clearing members. Against the backdrop of Karvy Stock Broking Ltd (KSBL) incident, the watchdog has now put in place stringent norms to prevent misuse of clients' securities that are available with trading and clearing members, and depository participants.

The new framework has been devised after extensive consultations with stock exchanges, clearing corporations, depositories and industry representatives of trading and clearing members, and depository participants, according to a circular.

"With effect from June 01, 2020, TM (Trading Member) / CM (Clearing Member) shall, inter alia, accept collateral from clients in the form of securities, only by way of 'margin pledge', created in the depository system...," the circular said.

In November, the watchdog barred KSBL from taking new brokerage clients after it was found that the brokerage firm had allegedly misused clients' securities to the tune of more than Rs 2,000 crore.

On February 17, Sebi chief Ajay Tyagi said it would soon come out with a circular to prevent incidents like KSBL.

"Transfer of securities to the demat account of the TM / CM for margin purposes (ie. title transfer collateral arrangements) shall be prohibited.

"In case, a client has given a power of attorney in favour of a TM / CM, such holding of power of attorney shall not be considered as equivalent to the collection of margin by the TM / CM in respect of securities held in the demat account of the client," the circular said.