SEBI tells stock brokers to tag bank, demat accounts by June 30

Capital markets regulator Securities and Exchange Board of India (SEBI) has said all demat accounts maintained by stock brokers should be appropriately tagged by June 30, 2022, or credit of securities will be barred in such accounts. "All demat accounts of stock brokers which are untagged need to be appropriately tagged by June 30, 2022," says a circular by the markets watchdog.

SEBI has said the credit of securities will not be allowed in any demat account left untagged from July 01, 2022, onwards. However, credits on account of corporate actions will be permitted. Tagging of bank and demat accounts is done to see for what purpose those are being maintained, and the information is then shared with stock exchanges or depositories.

SEBI also said debit of securities will not be allowed in any demat account left untagged from August 01, 2022. SEBI says tagging of demat accounts after August 1, 2022, will need approval from the stock exchange, along with a penalty. "The stock brokers will have to obtain permission from stock exchanges to allow tagging of such demat accounts from August 01, 2022, onwards. The stock exchanges will grant such approval in two working days after imposing penalty as per their internal policy," the SEBI circular says.

Stock exchanges and depositories have been directed to bring the provisions of this circular to the notice of their members or participants and also disseminate it on their websites. They'll also have to make amendments to the relevant bye-laws, rules and regulations and communicate the status of successful implementation of the circular in their monthly development report to SEBI.

SEBI has clarified that the circular will not be applicable for the demat accounts that are used exclusively for banking activities by stock brokers, which are also banks.

Notably, SEBI, on September 26, 2016, had mandated uniform nomenclature to be followed by stock brokers for naming or tagging of bank and demat accounts to reflect the purpose for which those accounts are being maintained and the reporting of such accounts to the stock exchanges and depositories. Subsequently, on June 20, 2019, and February 25, 2020, SEBI introduced some changes to tagging of demat accounts.

Thus, stock brokers are required to maintain demat accounts only under the following 5 categories — proprietary account, pool account, client unpaid securities account, client securities margin pledge account, and client securities under margin funding account.

On June 22, 2017, SEBI also decided that naming proprietary demat accounts of the stock broker as 'Stock Broker –Proprietary Account' is voluntary and accounts which are not tagged would be deemed to be proprietary. After further talks, SEBI has now decided that all demat accounts maintained by stock brokers should be appropriately tagged.