The Securities and Exchange Board of India (Sebi) has modified the rules governing the settlement of running accounts of clients’ funds deposited with their respective stock brokers.
The new guidelines will be applicable from October 1, 2022.
In a circular dated July 27, 2022, Sebi said that the settlement of running account of clients’ funds shall be done by the trading member “after considering the end of the day (EOD) obligation of funds as on the date of settlement across all the exchanges on first Friday of the quarter (i.e., Apr-Jun, Jul-Sep, Oct-Dec, Jan–Mar) for all clients.”
Sebi further clarified that if the first Friday of the quarter is a trading holiday, then “such settlement shall happen on the previous trading day”.
The market regulator also stated that if a client has opted for a monthly settlement process, then “their running account shall be settled on the first Friday of every month”. Furthermore, “If the first Friday is a trading holiday, then such settlement shall happen on the previous trading day.”
Snehal Kathrani, group head, compliance and legal, Prabhudas Lilladher, a financial services company said, "settlement of running account for securities has been discontinued vide SEBI circular June 20, 2019 and therefore the earlier circulars and this circular issued are now applicable for settlement of running account of client’s 'funds' only."
How Different Is The New Ruling From The Previous One?
Tejas Khoday, CEO of FYERS, a Bangalore-based discount brokerage firm, explained that “if a customer added funds on July 28, in the previous rule set, unutilized funds were required to be transferred to the bank account on the 30th day.”
“With the new rule, unused funds should be reverted to the customer's bank account on the first Friday of the following month. This circular superseded the previous set of rules, which were specific to each customer's unused funds. Now, the payouts must be processed by brokerages based on the fixed days of each month/quarter,” Khoday added.
How Does This New Ruling Impact Daily Trading Operations?
Khoday added that retail investors make up 40 per cent of the gross turnover at the stock exchanges. So, “mass payouts on any single day by all brokerages may impact the market-wide liquidity.”
Kathrani said that this new regulation will create more transparent and accurate payment system from the brokers end. However "Investors may loose on the immediate opportunity for the margin requirements, and to get the margin limits the client would need to transfer the funds which could take a couple of minutes."
"From the stock brokers end, the small stock brokers would need to keep funds ready for the remittance on the first Friday of the quarter / month also there would be procedural changes for adhering to this change," added Kathrani.