Capital markets regulator Sebi on Wednesday came out with new guidelines for settlement of running account of client’s funds and securities that will be applicable from August 1.
Under the guidelines, retention of any amount towards administrative or operational difficulties in settling the accounts of regular trading clients (active clients), will be discontinued, the Securities and Exchange Board of India (Sebi) said in a circular.
The settlement of the running account of funds of the client will be done by the trading member after considering the end of the day obligation of funds as on the date of settlement across all the exchanges, at least once within a gap of 30 or 90 days between two settlements of the running account as per the preference of the client.
In case of a client having any outstanding trade position on the day on which settlement of the running account of funds is scheduled, a trading member may retain funds calculated in the manner specified by the regulator, Sebi said.
A trading member can retain 225% of the total margin liability in all the segments across exchanges. A trading member will first adjust the value of securities (after applying appropriate haircut) accepted as collateral from the clients by way of ‘margin pledge’. The pledge will be created in the depository system for the purpose of margin and value of commodities (after applying appropriate haircut) respectively. Thereafter, the trading member will adjust the client funds. Sebi said that excess securities in the form of margin pledge or any cash equivalent collateral identifiable with the client and deposited with clearing corporations, after adjustment of 225% of margin liability, need not be unpledged.
According to Sebi, a client’s running account will be considered settled only by making actual payments into the client’s bank account and not by making any journal entries.
Journal entries in the client account will be permitted only for levy or reversal of charges in the client’s account.
For clients having a credit balance and have not done any transaction in 30 calendar days since the last transaction, the credit balance will be returned by the trading member within the next three working days, irrespective of the date when the running account was previously settled.
In cases where a physical payment instrument (cheque or demand draft) is issued by a trading member towards the settlement of a running account due to failure of electronic payment instructions, the date of realization of the physical instrument into the client’s bank account will be considered as the settlement date. An authorized person would not be permitted to accept the client’s funds and securities, and the trading member has been asked to keep a proper check.
Proprietary trading by authorized persons would be permitted only on his own funds and securities and not by using any of the client’s funds, Sebi said.
Once a trading member settles the running account of funds of a client, an intimation needs to be sent to the client by SMS on the mobile number and also by email.
The intimation should include details about the transfer of funds and in case of electronic transfer, transaction number, and date. In the case of physical payment instruments, the instrument number and date should be mentioned.
A trading member will have to send the retention statement along with the statement of running accounts to the clients as per the existing provisions within five working days.
Clients will have to bring any dispute on the statement of running account to the notice of the trading member concerned within 30 working days from the date of the statement.
The regulator has also asked stock exchanges to develop an online system for effective monitoring of timely settlement of running accounts for funds of clients and to verify that excess clients’ funds are not retained by a trading member on the date of settlement of running accounts.
The intent of the online system will be to discourage trading members from retaining excess funds of clients after settlement of running accounts, by considering all the client obligations across exchanges. The responsibility of monitoring settlement of running accounts compliance of trading members may be shared among stock exchanges, Sebi said.
In February 2020, Sebi discontinued title transfer of securities to the Demat account of trading members for margin purposes and trading members have to accept collateral from the clients in the form of securities only by way of ‘margin pledge’ created in the depository system.
