SEBI to Streamline Rules for Unclaimed Shares, Enhance Compliance and Investor Clarity

SEBI Proposes Changes to Framework for Handling Client Unpaid Securities

The Securities and Exchange Board of India (SEBI) has published a consultation paper and a draft circular outlining proposed changes to the framework governing the handling of clients' unpaid securities. The aim of these changes is to remove operational ambiguities while maintaining investor safeguards.

Key Proposals

SEBI has proposed several key changes to the framework, including clarifying funding timelines, defined timelines for pledge release, partial release of pledged securities, tightening auto-release timelines, and clarity for broker-clearing structures.

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Clarifying Funding Timelines

One of the key proposals addresses confusion around the 5-day funding period. SEBI has clarified that brokers may require payment within a shorter period, as per their disclosed internal policies. This modification aims to remove the misconception that clients have a blanket 5-trading-day window post-payout to make payments.

Defined Timelines for Pledge Release

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To improve predictability, SEBI has proposed a clear timeline for the release of pledges. If a client fulfils payment obligations before 5 PM, the pledge must be released on the same day. Payments after the cut-off will result in release by 5 PM on the next trading day.

Partial Release of Pledged Securities

The draft introduces explicit provisions for partial release of pledged securities, which were absent earlier. Brokers will need to conduct a daily assessment of pledge value and release securities proportionately based on client payments and changes in collateral value.

Auto Release Timeline Tightened

The regulator has also proposed to remove ambiguity in auto-release provisions. If the pledge is neither invoked nor released within 5 trading days from payout, depositories will automatically release the pledge at the end of the sixth trading day.

Clarity for Broker-Clearing Structures

In cases where broking members and clearing members are separate entities, SEBI has proposed that unpaid securities be repledged to the clearing member's CUSPA account if the broking member has not met fund obligations.

The proposed changes aim to align the framework with evolving market practices, including direct credit of securities to client demat accounts, while balancing ease of doing business with investor protection.