Sebi revises norms on handling unpaid client securities by brokers

Sebi has revised rules for unpaid client securities, introducing auto-pledge mechanisms and stricter timelines to enhance investor protection and broker accountability.

The Securities and Exchange Board of India (Sebi) on Friday announced amendments to the norms governing how stockbrokers handle clients’ unpaid securities, citing changes in market practices and operational challenges.

 

The payout of unpaid securities—those not paid for in full by clients and not covered under the margin trading facility (MTF)—will be made directly to the client’s demat account, followed by the creation of an auto-pledge in favour of a separate account titled 'client unpaid securities pledgee account (CUSPA)' maintained by the stockbroker.

 

Clients must be informed about their payment obligations and the broker's right to sell such securities if the obligation is not fulfilled.

 

The regulator has mandated that brokers put in place a policy for handling unpaid securities, including timelines and processes for pledge invocation, release and liquidation. The policy must specify a maximum period of five trading days from the payout date within which clients must meet their payment obligations.

 

“In case such pledge on unpaid securities is neither invoked nor released within five trading days after payout, the pledge on securities shall be automatically released by the depositories at the end of the sixth trading day after payout, and the securities shall become available to the client as free balance without encumbrance,” Sebi said.

 

If the client fails to meet the obligation within the prescribed period, the trading member may invoke the pledge and liquidate the securities after providing notice. The securities will be sold in the market using the client’s unique client code, and any surplus after settlement will be credited to the client’s ledger.