Markets regulator SEBI has made it mandatory for investors to block securities on their respective demat accounts for sale transactions from November 14. Currently, investors have this as an option but it is not mandatory, as early pay-in method was also available. Now, SEBI made it clear even for early pay-in transactions, blocking of security is a must.
Under block mechanism, shares of a client intending to make a sale transaction will be blocked in the client's demat account in favour of the clearing corporation similar to ASBA in IPO, where money is blocked in client account till IPO allotment.
In July last year, SEBI came out with a circular for introduction block mechanism from August 1.
After extensive consultation
After extensive consultation with depositories, clearing corporations and stock exchanges, and considering the benefits of the block mechanism, SEBI has decided that the "facility of block mechanism shall be mandatory for all early pay-in transactions".
In case the sale transaction is not executed, shares will continue to remain in the client's demat account and will be unblocked at the end of the T(Trade) day. Blocking of shares will be on a 'time basis', it said.
Procedures to block shares
Shares lying in a client’s demat account will be blocked either by the client himself using the depository’s online system or eDIS mandate or through depository participant based on physical DIS given by client or via a PoA.
Depositories may block the securities in the client’s demat account in respect of Intra or inter depository transfer instruction till pay-in day. The blocked securities will be transferred only after checking against the client level net delivery obligation received from clearing corporations of stock exchanges.
Depositories and clearing corporations will have to put in place an appropriate system by participants or members to make available the block mechanism for clients in the securities market, the SEBI circular added.