Sebi weighs mandatory direct securities payout to client's account

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.

Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective client's demat accounts.

Further, a facility of direct delivery to investors was introduced in February 2001.

"It has been decided that the process of securities payout directly to the client account shall now be mandatory," the Securities and Exchange Board of India (Sebi) said in its consultation paper.

The securities for payout should be credited directly to the respective client's demat account by the clearing corporations.
 

Moreover, clearing corporations should provide a mechanism for Trading Member(TM)/clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

In case of any shortages "arising due to inter se netting of positions between clients" -- internal shortages -- Sebi suggested TM or CM should handle such shortages through the process of auction.

Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

In May 2023, Sebi specified various processes for handling of clients' securities with regard to pay-in and pay-out of securities.

This was to protect clients' securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse.

The regulator has sought comments from the public till May 30 on the proposal.