The Securities and Exchange Board of India has introduced an automated process for the invocation and sale of pledged securities in the depository system.
The change aims to simplify operational challenges faced by brokers under the current framework.
As per the new circular released on Tuesday, when a client sells securities that have been pledged as margin, the depositories will provide a single instruction facility called 'pledge release for early pay-in'.
This will automatically release the pledge and create an early pay-in block in the client's demat account, based on the client's delivery obligation as validated by clearing corporations. The broker will no longer be required to issue separate physical or electronic instructions.
In cases where brokers invoke margin pledged securities, the invoked shares — excluding mutual fund units that are not exchange traded — will be automatically blocked for early pay-in in the client's demat account.
A trail will be maintained in the broker's 'Client Securities Margin Pledge Account' or 'Client Securities under Margin Funding Account'. For mutual fund units not traded on exchanges, SEBI has directed depositories to enable a single instruction called 'invocation-cum redemption' to facilitate automatic redemption after invocation.
If a client's trading account is frozen or marked as "not permitted to trade" after a pledge is created, the invoked securities will be credited to the broker's demat account and must be sold under the broker's proprietary code.
SEBI has mandated that the pay-in of such securities must be completed on the same day to prevent the accumulation of client securities in brokers' accounts.
The new framework will come into effect from Sept. 5. Depositories are required to issue detailed operating guidelines by July 1.
Stock exchanges, clearing corporations and depositories have been directed to inform their members and amend their relevant bylaws, rules and regulations to implement the changes.
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