**Summary:**
This circular, reference number SEBI/HOM/MIRSD/DoP/CIR/2022/143 dated October 27, 2022, issued by the Securities and Exchange Board of India (SEBI), clarifies the applicability of the block mechanism in demat accounts for clients undertaking sale transactions. The circular is addressed to all Depositories, recognized Stock Exchanges, and Clearing Corporations.
The circular clarifies an exemption to the mandatory block mechanism for Early Pay-In transactions. While the block mechanism was initially introduced on an optional basis via circular CIR/HOM/MIRSD/DOP/CIR/2022/595 dated July 16, 2021, it was later made mandatory through circular SEBI/HOM/MIRSD/DoP/CIR/2022/109 dated August 18, 2022.
This current circular clarifies that the mandatory block mechanism will not apply to clients who have existing arrangements with custodians registered with SEBI for clearing and settlement of trades. All other provisions outlined in the August 18, 2022, and July 16, 2021, circulars remain in effect.
Depositories and Clearing Corporations are instructed to implement appropriate systems to ensure compliance. Stock Exchanges and Depositories are directed to disseminate the circular's provisions to their members/participants, publish it on their websites, amend relevant bylaws/rules/regulations, and communicate the implementation status to SEBI by November 15, 2022, and in their Monthly Development Reports.
This circular is issued under the authority granted by Section 11(1) of the Securities and Exchange Board of India Act, 1992, and Section 19 of the Depositories Act, 1996, with the aim of protecting investor interests and promoting the development and regulation of securities markets.
For further information, contact Aradhana Verma, Deputy General Manager, at 022-26449633 or aradhanad@sebi.gov.in.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular and overseeing securities markets in India.
Depositories: Entities that hold securities in dematerialized form.
Stock Exchanges: Organizations that provide a platform for trading securities.
Clearing Corporations: Entities that facilitate the clearing and settlement of securities transactions.
Demat account: An account to hold financial securities in electronic form.
Early PayIn mechanism: A mechanism that allows clients to transfer securities to the exchange before the actual settlement date to avoid shortages.
Block Mechanism: A process where securities in a demat account are blocked for sale transactions.
Depositories Act, 1996: The Indian legislation governing the establishment, regulation, and functioning of depositories.
CIRCULAR
SEBI/HO/MIRSD/DoP/P/CIR/2022/143 October 27, 2022
To,
All Depositories
All recognized Stock Exchanges and Clearing Corporations
Madam / Sir,
Sub: Block Mechanism in demat account of clients undertaking sale
transactions - Clarification
1. SEBI, vide circular no. CIR/HO/MIRSD/DOP/P/CIR/2022/595 dated July 16, 2021,
introduced block mechanism in the demat account of clients undertaking sale
transactions, for ease of operations in Early Pay-in mechanism. The mechanism
was introduced on optional basis.
2. Subsequently, vide circular no. SEBI/HO/MIRSD/DoP/P/CIR/2022/109 dated
August 18, 2022, SEBI made the facility of block mechanism mandatory for all
Early Pay-In transactions by amending clause 5 of circular dated July 16, 2021 as
under:
“5. The facility of block mechanism shall be mandatory for all Early Pay-In
transactions.”
3. In view of the representations received from Depositories and Custodians, it is
clarified that the block mechanism shall not be applicable to clients having
arrangements with custodians registered with SEBI for clearing and settlement of
trades.
4. All other provisions in the SEBI circular dated August 18, 2022 and SEBI circular
dated July 16, 2021 shall continue to remain applicable.
Page 1 of 25. Depositories and Clearing Corporations shall put in place appropriate systems to
ensure compliance of the provisions of this circular.
6. Stock Exchanges and Depositories are directed to:
a. bring the provisions of this circular to the notice of their members / participants
and also disseminate the same on their websites;
b. make necessary amendments to the relevant Bye-laws, Rules and Regulations
for the implementation of the above decision.
c. communicate to SEBI, the status of the implementation of the provisions of this
circular on November 15, 2022 and in their Monthly Development Reports.
7. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992, and Section 19 of the
Depositories Act, 1996 to protect the interests of investors in securities and to
promote the development of, and to regulate the securities markets.
Yours faithfully
Aradhana Verma
Deputy General Manager
Tel. No: 022 26449633
aradhanad@sebi.gov.in
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