- SEBI mandates unpaid shares remain in investors' demat accounts with broker pledge rights
- Unpaid shares auto-pledged via Client Unpaid Securities Pledgee Account after crediting investor
- Brokers must notify clients of dues and potential sale of pledged securities via email or SMS
The Securities and Exchange Board of India has revamped rules governing shares bought by investors but not fully paid for, requiring such securities to remain in clients' demat accounts while giving brokers a pledge over them until outstanding dues are cleared.
The move is aimed at improving investor protection and aligning regulations with the current market structure, where securities are directly credited to investors' demat accounts.
Under the new framework, unpaid shares will first be credited to the investor's demat account and then automatically pledged in favour of the broker through a dedicated "Client Unpaid Securities Pledgee Account" or CUSPA. Brokers will also be required to notify clients through email or SMS about pending payment obligations and the possibility of the securities being sold if dues are not settled.
The regulator has mandated that stockbrokers maintain a transparent policy governing the invocation, release and liquidation of unpaid securities. The policy must specify the timeline within which clients need to make payments, with the maximum period capped at five trading days from the payout date.
If a client fails to meet the payment obligation within the prescribed period, brokers may invoke the pledge and sell the securities in the market using the client's unique code. Any surplus remaining after recovery of dues must be returned to the client.
A key investor-protection feature is the introduction of an automatic release mechanism. If a broker neither invokes nor releases the pledge within five trading days after payout, depositories will automatically release the pledge on the sixth trading day, making the shares freely available to the investor.
SEBI has also barred brokers from using securities pledged under the unpaid shares mechanism to raise funding from banks or non-banking finance companies.
In exceptional situations, such as stocks being locked in lower circuits with no buyers, trading suspensions, or other circumstances that prevent liquidation, brokers may seek extensions to continue the pledge until the securities can be sold.
The changes amend SEBI's existing framework on handling unpaid securities and are intended to balance investors' ownership rights with brokers' ability to recover unpaid trading obligations.
ALSO READ: SEBI Launches Helpdesk Facility To Help Applicants To File Settlement Applications
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