Market regulator SEBI, through a circular released on June 8, has put a norm to upstream clients’ funds by Stock Brokers (SBs) and Clearing Members (CMs) to Clearing Corporations (CCs).
As per the new framework, SBs and CMs shall not retain client funds and must be upstreamed — sent to CCs every day on End of Day (EOD) basis. The rule will come into effect on July 1. The new measure is yet another step taken by SEBI to protect the investors’ funds and improve their confidence.
Earlier, SBs and CMs were able to retain some of the client funds before the remaining was transferred to CCs. But from July 1, SBs and CMs will have to transfer the funds before the cut-off time given to them. They can transfer in the form of cash, or FDR (Fixed Deposit Receipts), or the pledged units of Mutual Fund Overnight Schemes (MFOS) that satisfy predetermined conditions.
With respect to withdrawal of funds, when the client makes a request to SBs/CMs, they in turn should raise a request to CCs before the stipulated cut-off time. Following this, CCs will release the funds.
But note that there are times when SB/CMs can request for release of funds even if the client did not come up with a request. Such events can be clients having unpaid obligations, loss due to sale of unpaid securities, loss, statutory levies, brokerage charges, other charges like DP charges or funds to be released to clients on account of regulatory requirements such as running account settlement.