SEBI Circular on Handling of Clients’ Securities by Trading Members (TM) / Clearing Members (CM) – November 11, 2022

SEBI vide its Circular dated November 11, 2022 in order to further streamline the process of handling of unpaid securities by TM/CM and also to prevent any kind of misuse of such unpaid securities, after extensive consultations with Exchanges, Depositories and Clearing Corporations, the following is decided:

Provisions with regard to client unpaid securities account, specified in SEBI Circular dated June 20, 2019 : Provisions with regard to client unpaid securities account, specified in SEBI Circular dated June 20, 2022 : “With regard to securities that have not been paid for in full by the clients (unpaid securities), a separate client account titled – “client unpaid securities account” shall be opened by the TM/CM. Unpaid securities shall be transferred to such “client unpaid securities account” from the pool account of the concerned TM/CM. The securities kept in the ‘client unpaid securities account’ shall either be transferred to the demat account of the respective client upon fulfilment of client’s funds obligation or shall be disposed off in the market by TM/CM within five trading days after the pay-out. The unpaid securities shall be sold from the Unique Client Code (UCC) of the respective client. Profit/loss on the sale transaction of the unpaid securities, if any, shall be transferred to/adjusted from the respective client account. In case the clients’ securities are kept in the ‘client unpaid securities account’ beyond seven trading days after the pay-out, the depositories shall under their bye-laws levy appropriate penalties upon such TM/CM which shall not be permitted to be recovered from the client.” All the securities received in pay-out, shall be transferred to the demat account of the respective clients directly from the pool account of the TM/CM within one working day of the pay-out. With regard to the unpaid securities (i.e., the securities that have not been paid for in full by the clients), such securities shall be transferred to respective client’s demat account followed by creation of an auto-pledge (i.e., without any specific instruction from the client) with the reason “unpaid”, in favor of a separate account titled –“client unpaid securities pledgee account”, which shall be opened by TM/CM. After the creation of pledge, a communication (email / SMS) shall be sent by TM/CM informing the client about their funds obligation and also about the right of TM/CM to sell such securities in event of failure by client to fulfill t