Sebi makes process of securities payout directly to client’s account mandatory

SEBI mandates direct payout of securities to client's demat account for operational efficiency and risk reduction.

To enhance operational efficiency and reduce the risk to clients' securities, markets regulator SEBI on May 5 decided to make the process of direct payout of such securities to the client's account mandatory.

This will become effective from October 14, the Securities and Exchange Board of India (SEBI) said in a circular. Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective client's demat accounts. Further, a facility of direct delivery to investors was introduced in February 2001.

After extensive deliberations with the stock exchanges, clearing corporations (CCs) and depositories, SEBI has decided that "the securities for pay-out shall be credited directly to the respective client's demat account by the CCs".

Moreover, clearing corporations should provide a mechanism for trading member (TM) or clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

In case of any shortages "arising due to inter se netting of positions between clients" — internal shortages — SEBI suggested TM or CM should handle such shortages through the process of auction. Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

In May 2023, SEBI specified various processes for handling clients' securities with regard to pay-in and pay-out of securities. This was to protect clients' securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse.