SEBI, the capital markets regulator, issued new instructions on Wednesday for the settlement of running accounts of client funds and securities, which will take effect on August 1.
The Securities and Exchange Board of India (SEBI) indicated in a circular that any amount retained for administrative or operational issues in paying the accounts of frequent trading clients (active clients) shall be discontinued.
The trading member will settle the client’s running account of funds after taking into account the client’s end of the day obligation of funds on the date of settlement across all exchanges, at least once within a gap of 30 or 90 days between two settlements of the running account, depending on the client’s preference.
If a client has an open trade position on the day the running account of funds is scheduled for settlement, the trading member may hold money computed in the way specified by the regulator, SEBI stated.
A trading member may keep up to 225 percent of the overall margin debt across all exchange segments.
A trading member will first modify the value of securities taken as collateral from clients via’margin pledge’ (after imposing an acceptable haircut). The pledge will be established in the depository system for the purposes of margin and commodity value (after applying an appropriate haircut). Following that, the trading member will rebalance the client’s funds.
SEBI stated that surplus securities in the form of margin pledges or cash equivalent collateral identifiable with the client and deposited with clearing organisations do not need to be unpledged following the adjustment of 225 percent of margin liabilities.
According to SEBI, a client’s running account is settled only when actual payment is made into the client’s bank account, not through the creation of journal entries.
Journal entries into the client account shall be permitted exclusively for the purpose of levying or reversing charges against the client.
If a customer has a credit balance and has not made a transaction in the last 30 calendar days, the trading member will return the credit amount within the next three working days, regardless of when the running account was previously cleared.
When a trading member issues a physical payment instrument (cheque or demand draught) to settle a running account due to the failure of electronic payment instructions, the settlement date is the date on which the physical instrument is deposited into the client’s bank account.
An approved individual is not entitled to accept a client’s funds or securities, and the trading member is required to maintain adequate controls.
Proprietary trading by authorised persons is authorised only on his or her own assets and securities and not on the money of a client, SEBI stated.
Once a trading member settles a customer’s running account of funds, the client must be notified through SMS on the customer’s cellphone number and also by email.
The notification should contain information regarding the financial transfer and, in the case of an electronic transfer, the transaction number and date. If the payment instrument is physical, the instrument number and date should be specified.
A trading member will be required to transmit the retention statement along with the statement of running accounts to clients within five working days, in accordance with existing requirements.
Clients must bring any disagreements with the trading member’s statement of running account to the trading member’s attention within 30 working days of the statement’s date.
Additionally, the regulator has directed stock exchanges to build an online system for effectively monitoring the timely settlement of running accounts for client funds and ensuring that no trading member retains excess client funds on the date of running account settlement.
The online system’s purpose is to dissuade trading members from keeping surplus monies from clients following account settlement, by taking into account all client commitments across exchanges. SEBI stated that the obligation for monitoring trading members’ compliance with settlement of running accounts may be shared among stock exchanges.
SEBI discontinued title transfer of assets to trading members’ demat accounts for margin purposes in February 2020, and trading members are now required to take collateral in the form of securities from clients exclusively via a’margin pledge’ formed in the depository system.