SEBI revises rules for unpaid client securities, introducing CUSPA auto-pledge and release

Sebi tweaks rules on handling of unpaid securities

The Securities and Exchange Board of India has simplified rules for stockbrokers handling unpaid client securities. A new automated pledge system will now manage these shares, directly crediting them to client demat accounts while pledging them to a special broker account. This move aims to ease operational hurdles and align with current market practices, addressing concerns raised by the broking industry.

3 hours ago

SEBI Revises Unpaid Securities Rules, New Auto-Pledge Framework Gives Brokers Five Days Before Share Sale

Mumbai: Securities and Exchange Board of India (SEBI) has eased rules for handling clients’ unpaid securities by stockbrokers, introducing a revised pledge framework aimed at improving operational efficiency and investor convenience.New Framework for Unpaid SecuritiesUnder the new rules, if a client buys shares but does not make full payment for them outside the Margin Trading Facility (MTF), those securities will still be credited directly to the client’s demat account. SEBI Tightens Rules On Pledged Shares, Lock-In Period Now Bars Sale & Transfer During RestrictionHowever, these unpaid securities will now be automatically pledged in favour of a special account called the Client Unpaid Securities Pledgee Account (CUSPA), which must be opened by the trading member.This automatic pledge will happen without requiring separate approval or instruction from the client.Payment Window and Broker RightsSEBI has asked brokers to clearly inform clients about pending payment obligations and the consequences of default.Trading members must also create a formal policy explaining how unpaid securities will be handled, including pledge invocation, release and liquidation.The policy must provide clients a maximum of five trading days from payout date to clear their dues.If payment is not made within this period, brokers may invoke the pledge and sell the securities after giving reasonable notice to the client.Any money left after recovering dues must be credited back to the client’s ledger. RBI Tightens Broker Funding Norms, 100% Collateral Mandatory From April 2026; No Bank Support For Proprietary TradingAutomatic Release MechanismSEBI has also introduced an automatic release system to protect investors.If the broker neither invokes nor releases the pledge within five trading days after payout, depositories will automatically release the pledge on the sixth trading day.Once released, the securities become freely available in the client’s demat account.Restrictions and ImplementationSEBI clarified that securities pledged under CUSPA cannot be further pledged to banks or NBFCs for raising funds.In special cases such as lower circuit restrictions or trading suspensions, brokers may seek an extension of up to one additional calendar week, but clients must be informed.Stock exchanges must issue operational guidelines within 30 days. The new pledge framework will become effective three months after these guidelines, while extension-related rules will take effect after six months.

17 hours ago

Sebi changes rules on unpaid client securities to ease broker operations

Capital markets regulator Sebi has changed the rules for how stock brokers handle client securities that have not been fully paid for, in a move aimed at aligning market practices with the direct payout system and reducing operational difficulties for brokers.The changes come after representations from the Brokers’ Industry Standards Forum, which sought revisions to reflect current regulatory and market conditions. SEBI said the decision was taken to improve ease of doing business for brokers and ease of investing for clients.Under the revised framework, for trades not covered under the margin trading facility, unpaid securities will be directly credited to the client’s demat account. After that, an auto-pledge will be created in favour of a separate account opened by the trading member, called the “client unpaid securities pledgee account,” or CUSPA. The pledge will carry the reason “unpaid” and will not need any specific instruction from the client.The broker will also have to inform the client through email or SMS about the pending payment obligation and its right to sell the securities if the client does not pay. SEBI has asked trading members to frame a clear policy for handling such unpaid securities. This policy must explain the process, reasons, manner and timing for release or invocation of the pledge and liquidation of securities. The client must be given a maximum period of five trading days from the payout date to meet the payment obligation.From WhatsApp chats to food orders: How Sebi cracked a Rs 144 crore stock manipulation schemeSebi has also clarified that while such unpaid securities pledged to the broker’s CUSPA may be considered for reporting client margin collection to the clearing corporation, the broker cannot give fresh exposure to the client on the basis of these securities. This means the securities may support margin reporting, but cannot be used to allow additional trading limits.The circular also lays down how excess pledged securities should be released. Brokers must check the value of pledged securities daily against the client’s ledger balance, margin obligation or other factors that may be specified by exchanges. If the pledged value is higher than what is allowed, the broker must release the excess securities by the next trading day.If the client does not pay within the prescribed period, the broker may invoke the pledge and sell the unpaid securities after giving reasonable notice. The sale will be done in the market using the client’s unique client code. Any surplus funds left after settling the client’s obligation must be credited to the client’s ledger.A key investor protection measure is the auto-release provision. If the pledge is neither invoked nor released within five trading days after payout, depositories will automatically release the pledge at the end of the sixth trading day. The securities will then become free balance in the client’s demat account, without any encumbrance.Sebi has also barred brokers from further pledging or transferring CUSPA-pledged securities to banks or non-bank lenders to raise funds. In exceptional cases, such as lower circuit stocks with only sellers, trading suspension, halt due to surveillance or other valid reasons recognised by market infrastructure institutions, brokers may seek an extension of the pledge by up to one additional calendar week.Stock exchanges have been asked to issue operational guidelines within 30 days. Most amended provisions will take effect three months from the date of those guidelines, while provisions on extension of pledge in exceptional cases will come into force six months from the circular date.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

19 hours ago