SEBI tightens norms to prevent misuse of investor funds by brokers

Our Bureau Mumbai | Updated on June 16, 2021

Issues framework on settlement of running account of funds

SEBI has devised a framework to minimise the risk of misuse of investor funds by stock brokers. The new measures are part of the market regulator’s effort to prevent misappropriation and misuse of client funds by brokers and also to shield the former in the event of a default by the latter.

This follows several instances of brokers misusing clients’ securities for trades that were not authorised by them. For example, in 2019 Karvy Stock Broking was banned by SEBI for defaulting clients for around ₹2,000 crore making it one of the biggest such cases in India.

Under the revised framework, the settlement of running account of funds of the client shall be done by the brokerage firm 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 30/90 days between two settlements of running account as per the preference of the investor client.

In case of a client having any outstanding trade position on the day on which settlement of running account of funds is scheduled, a broker may retain funds calculated in a specific manner specified.

Margin liability

Margin liability as on the date of settlement of running account, in all segments and additional margins (up to 125 per cent of total margin liability on the day of settlement) pay-in obligation, therefore, the trading member may retain 225 per cent of the total margin.

In May, the market regulator had proposed segregating the funds collected by brokers and identifying them in the name of each client. Until then, the clearing corporation (CC) of stock exchanges, which settle the trades, identified all the margin collected as that of the trading (brokers) or clearing members even if it belonged to clients.

Published on June 16, 2021

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