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TMI BlogHandling of Clients’ Securities by Trading Members/Clearing MembersX X X X Extracts X X X X X X X X Extracts X X X X ..... t s funds and securities by stock broker (hereinafter referred to as Trading Member /Clearing Member or TM/CM): a) Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993: In terms of clause 2 of the circular SEBI had inter alia specified that it shall be compulsory for all member brokers to keep separate accounts for client s securities and to keep such books of accounts, as may be necessary, to distinguish such securities from his/their own securities. Such accounts for client s securities shall, inter-alia provide for the following:- i. Securities fully paid for, pending delivery to clients; ii. Fully paid for client s securities registered in the name of Member, if any, towards margin requirements etc. b) SEBI Circular No. MRD/DOP/SE/Cir 11/2008 dated April 17, 2008 : In the said circular, SEBI had inter-alia specified that brokers should have adequate systems and procedures in place to ensure that client collateral is not used for any purposes other than meeting the respective client s margin requirements / pay-ins. Brokers should also maintain records to ensure proper audit trail of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Stock Brokers/ Depository Participants dated September 26, 2016 read with clause 2 (c) of SEBI circular CIR/HO/MIRSD/MIRSD2/CIR/P/2017/64 dated June 22, 2017 , a stock broker is entitled to have a lien on client s securities to the extent of the client s indebtedness to the stock broker and the stock broker may pledge those securities. Referencing the above stated provisions, the TM/CM are transferring client s securities into their own account by way of title transfer and then placing such securities as a collateral to Banks/NBFCs and/or fulfilling securities shortages of other clients/proprietary trades which is not contemplated in the provisions of the SEBI circulars referred to in paragraph 2. 4. In order to provide clarity with respect to a TM/CM maintaining a running account for client securities and pledging the client securities with Banks/NBFCs, after discussions with the Exchanges, Depositories and Clearing Corporations, the following advice is issued:- 4.1 The securities received in pay-out against which payment has been made by clients, shall be transferred to the demat account of the respective clients within one wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollateral/securities shall not be used for the purposes other than meeting client s margin requirements/pay-in. Referencing the above stated provisions, TMs/CMs are pledging collateral/securities of the clients with the Banks/NBFCs to borrow funds to meet the margin requirement of the clients/proprietary obligation which is not contemplated in the provisions of the aforesaid SEBI circular. In this regard, it is reiterated that the client securities received as collateral shall be used only for meeting the respective client s margin requirement by way of depositing the same with Stock Exchange/ Clearing Corporation/ Clearing House. 4.7 With effect from September 01, 2019, clients securities lying with the TM/CM in client collateral account , Client Margin Trading Securities account and client unpaid securities account cannot be pledged to the Banks/NBFCs for raising funds, even with authorization by client as the same would amount to fund based activity by TM/CM which is in contravention of Rule 8(1)(f) 8(3)(f) of Securities Contracts (Regulation) Rules, 1957 . 4.8 Further, the client s securities already pledged in terms of clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o handling of clients securities: Stock Exchanges, Clearing Corporations and Depositories shall put in place a mechanism for monitoring of the following: a) Handling of unpaid clients securities by the TM/CM Mechanism of matching of transfer of securities with the securities obligation as obtained from the clearing corporation with respect to the following: i. Securities transferred from the client unpaid securities account tothe pool account ii. Securities transferred from the client unpaid securities account to the concerned client account, iii. Securities transferred from pool account to the concerned client account b) All the DP accounts tagged as Stock Broker Client Account are wound up before August 31, 2019. c) Securities lying with TM/CM in client collateral account, client margin trading securities account and client unpaid securities account shall not be permitted to be pledged/transferred to Banks/NBFCs for raising funds by TM/CM. 7. Accordingly, the provisions with regard to running account settlement of clients funds and securities specified in SEBI Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X
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