Sebi tweaks framework for upstreaming of client funds by brokers

Markets regulator Sebi on Friday tweaked the framework pertaining to upstreaming of all client funds received by stock brokers and clearing members to clearing corporations.

The modifications have been made following representations received from various stakeholders, including Market Infrastructure Institutions (MIIs) and stock brokers, saying that changes to the systems are still under progress, and that there are certain practical difficulties in implementation of the proposed framework.

Under the framework which was issued earlier this month, no clients' funds would be retained by stock brokers on an End of Day (EoD) basis.

Further, clients' funds will be upstreamed by stock brokers and clearing members to clearing corporations only in the form of either cash, lien on Fixed Deposit Receipt (FDR) or pledge of units of mutual fund overnight schemes,

In a circular on Friday, Sebi said stock brokers/ clearing members (SBs/CMs) may receive funds from clients beyond the prescribed cut-off time for upstreaming subject to certain conditions.

The condition is that there should not be any further movement of funds from that account (i.e. a debit freeze) till the opening of upstreaming window on the next day.

"Further, stock exchanges shall ensure that such funds remaining in bank accounts of SB/CM are minimal and are for legitimate purposes," the circular said.

Besides, the regulator said the tenor of FDRs should not be more than one year and one day, and should also be pre-terminable on demand.

Existing FDRs, created out of clients' funds and having tenor or more than one year, created prior to issuance of the circular should be allowed to be grandfathered till maturity, Sebi said.

With respect to the above, the regulator was referring to the circular issued on June 8 on the upstreaming of all client funds.