SEBI eases broker rules for settlement of inactive client funds

Capital markets regulator SEBI today updated its guidelines to simplify the settlement process for unused funds. It says funds of clients who have not traded in the last 30 calendar days will be settled on the upcoming settlement dates of the monthly running account settlement cycle.

"For the clients having credit balance, who have not done any transaction in the 30 calendar days since the last transaction and any amount of such client’s funds is lying with the member for more than such 30 calendar days, the entire credit balance of client shall be returned to the client by TM, on the upcoming settlement dates of monthly running account settlement cycle (irrespective of settlement cycle preferred by the client) as stipulated by stock exchanges," SEBI says in its circular.

Earlier, if a client didn't carry out any transactions for 30 days, SEBI mandated brokers to settle the client’s money in the next three working days. Many times, this led to brokers checking each day for inactive clients and settling funds frequently, leading to extra work. SEBI says it has been represented by the Brokers’ Industry Standards Forum (ISF) that this requirement necessitates brokers to identify such clients daily, potentially leading to the daily settlement of client funds and resulting in procedural inefficiencies. It has further been represented that since the client funds are anyway upstreamed to the clearing corporation, there is a need to revisit the time for settling such client’s funds.

"Based on the above coupled with the recommendations received from Brokers’ ISF and to facilitate ease of doing business as well as to safeguard the investors’ interest, it has been decided to revise the requirement of mandatory settlement of such clients’ funds," says the regulator.

However, if the client trades after 30 calendar days and before the aforesaid upcoming settlement dates of the monthly running account settlement cycle, the settlement of the account of a client will continue to be done by the broker as per the preference of quarterly or monthly as indicated by the client for running account settlement.

The provisions of this circular shall come into force with immediate effect.

SEBI has asked stock exchanges to bring the provisions of this circular to the notice of their members and also disseminate the same on their websites. They will also make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above direction.