Sebi mulls direct payout of securities to client's account mandatory

Markets regulator Securities and Exchange Board of India has proposed direct payout of securities to client’s account mandatory. This move is expected to reduce the risk to clients’ securities.

At present, the clearing corporation credits the pay-outs to pool account of the broker, who then credits them to the client’s demat accounts.

Further, a facility of direct delivery to investors was introduced in February 2001.
“It has been decided that the process of securities payout directly to the client account shall now be mandatory,” the Securities and Exchange Board of India (Sebi) said in its consultation paper.

Sebi said the clearing corporations should provide a mechanism for Trading Member (TM)/clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

If any shortage occurs due to netting of positions between clients, Sebi suggested the trading member or clearing member to handle such shortages through auction process.

In such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

In May 2023, Sebi specified various processes for handling of clients’ securities with regard to pay-in and pay-out of securities.

This was to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse.
The regulator has sought comments from the public till May 30 on the proposal.

With inputs from PTI