Executive Summary:
SEBI has amended its regulations regarding the settlement of running accounts of client funds held by Trading Members (TMs). This decision, influenced by representations from the Brokers Industry Standards Forum (ISF), allows TMs to settle running accounts on either Friday or Saturday. The changes aim to streamline the settlement process while safeguarding investor interests and will be effective from the quarterly settlement of Jan-Mar 2024 and the monthly settlement of January 2024.
Key Points / Main Content:
Settlement of Running Accounts:
* TMs can settle running accounts of clients on either Friday or Saturday.
* Settlement can be done on a quarterly or monthly basis, based on client's choice, on dates stipulated by Stock Exchanges.
Standardization and Clarity:
* Stock exchanges must jointly issue an annual calendar for quarterly and monthly settlement of running accounts at the beginning of each financial year.
Investor Protection:
* Funds received from clients whose running accounts have been settled must remain in the Up Streaming Client Nodal Bank Account.
* These funds cannot be used to settle the running accounts of other clients.
* Stock Exchanges will develop a monitoring mechanism to enforce this.
Master Circular Amendments:
* Clause 47.1.1 of the Master Circular dated May 17, 2023, is modified to reflect the Friday/Saturday settlement option.
* Clause 47.1.2 is modified to mandate the issuance of a joint annual calendar by stock exchanges.
* Clause 47.1.3 is inserted to prevent the misuse of client funds.
Applicability:
* The provisions are effective from the quarterly settlement of Jan-Mar 2024 and the monthly settlement of January 2024.
* All other provisions under Clause 47 of the circular dated May 17, 2023, remain applicable.
Stock Exchange Responsibilities:
* Notify members of the circular's provisions and disseminate the same on their websites.
* Amend relevant Byelaws, Rules, and Regulations as necessary.
* Issue the settlement calendar for the financial year.
* Issue operational guidelines to members.
* Continue online monitoring of timely settlement and prevent excess client fund retention.
* Implement a reporting system for TMs.
* Report implementation status to SEBI in their monthly development report.
Impact Analysis:
Stock Exchanges:
Impact: Required to implement the changes, issue calendars and guidelines, monitor compliance, and report to SEBI.
Action Required: Amend rules, issue calendar and guidelines, establish monitoring mechanisms, and report implementation status.
Trading Members (TMs):
Impact: Flexibility in settling running accounts (Friday/Saturday), must adhere to new fund usage restrictions.
Action Required: Adjust settlement processes, ensure compliance with fund usage restrictions, and adhere to reporting requirements.
Investors:
Impact: Enhanced safeguarding of funds and streamlined settlement process.
Action Required: No direct action required; benefits from improved fund safety and process efficiency.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body issuing the circular, responsible for protecting investors and regulating securities markets in India.
Stock Exchanges: Recognized entities that facilitate trading in securities, addressed in the circular to implement the new settlement procedures.
Trading Member (TM): A member of a stock exchange who is authorized to trade on behalf of clients.
Brokers Industry Standards Forum (ISF): An industry body representing brokers, which raised concerns about the existing settlement process.
Master Circular on Stock Brokers: A key regulatory document issued by SEBI, which is being amended by this circular. Specifically, Clause 47 is referenced and modified.
Securities and Exchange Board of India Act, 1992: The legal foundation for SEBI's powers to issue regulations and protect investors.
Up Streaming Client Nodal Bank Account: The designated bank account where funds received from clients must be deposited and maintained separately to prevent misuse.
Amrita Shukla: Deputy General Manager at SEBI, the signatory of the circular.
CIRCULAR
SEBI/HO/MIRSD/MIRSD-PoD1/P/CIR/2023/197 December 28, 2023
To,
All recognized Stock Exchanges
Dear Sir/Madam,
Subject: Settlement of Running Account of Client’s Funds lying with Trading
Member (TM)
1. In order to safeguard the interests of investors, SEBI in 2018 had mandated
settlement of running account of client’s funds on first Friday of the quarter/month.
This has been incorporated as clause 47 of “Master Circular on Stock Brokers”
issued on May 17, 2023.
2. Broker’s Industry Standards Forum (ISF) had represented various problems faced
by brokers due to single day of settlement viz. hectic activities on the day of
settlement leading to chances of errors, missing out on payment timings of banks
due to late finalization, delayed instructions, etc. They have recommended that
TMs may be allowed to settle the running account of clients on Friday and/or
Saturday to address these operational difficulties.
3. After due consideration, SEBI has decided to accept the recommendation to settle
the running account of clients on Friday and/or Saturday, which streamlines the
process of settlement and ensures ease of doing business for various stakeholders
viz. stock brokers and banks, while at the same time safeguarding the interests of
the investors by ensuring error free settlement. In view of this the following changes
are made in the Master circular dated May 17, 2023 :
3.1. Clause 47.1.1 stands modified as follows:
“47.1.1 The TM, after considering the End of the Day (EOD) obligation of funds
across all the Exchanges, shall settle the running accounts at the
Page 1 of 3choice of the clients on quarterly and monthly basis, on the dates
stipulated by the Stock Exchanges.”
3.2. To ensure uniformity and clarity on dates of such monthly and quarterly
settlement of client accounts, clause 47.1.2 is modified as follows:
“47.1.2 Stock exchanges shall, jointly, issue the annual calendar for the
settlement of running account (quarterly and monthly) at the beginning
of the financial year.”
3.3. Further, to safeguard against any possibility of misuse of one client’s funds to
settle another clients’ running account, it is stipulated that any funds received
from clients shall remain in the upstreaming account. To incorporate this
safeguard, clause 47.1.3 is inserted as follows:
“47.1.3 TM shall ensure that funds, if any, received from clients, whose running
account has been settled, remain in the “Up Streaming Client Nodal
Bank Account” and no such funds shall be used for settlement of
running account of other clients. Stock Exchanges shall evolve a
monitoring mechanism for this purpose.”
4. The provisions of this circular shall be applicable with effect from the quarterly
settlement of Jan-Mar 2024 and monthly settlement of January 2024.
5. All other provisions under Clause 47 of the circular dated May 17, 2023 shall
continue to remain applicable.
6. Stock Exchanges shall:
6.1. bring the provisions of this Circular to the notice of their members and also
disseminate the same on their websites;
6.2. make amendments to the relevant Bye-laws, Rules and Regulations ,as may
be necessary;
6.3. issue the calendar for settlement of the client accounts for the financial year
Page 2 of 36.4. issue operational guidelines to their members in this regard;
6.5. continue online monitoring of timely settlement of running account for funds of
client and to verify that excess clients’ funds are not retained by the TM as on
the date of settlement of running account;
6.6. put in place an appropriate reporting requirement by TM to enforce the above
system; and
6.7. communicate the status of the implementation of the provisions of this Circular
in their monthly development report to SEBI.
7. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992, to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities markets.
Yours faithfully
Amrita Shukla
Deputy General Manager
Tel. No: 022 26449882
amrita@sebi.gov.in
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