SEBI has issued a circular dated June 03, 2025, introducing important changes to the margin pledge invocation mechanism. Previously, brokers could accept client collateral only via margin pledges.
SEBI found that after invocation of client’s securities pledged in favor of demat account of brokers such invoked shares are lying unsold resulting into the accumulation of clients’ securities in demat account of the broker – a situation that proved to be operationally inefficient and complex and the same was also highlighted by the Brokers’ Industry Standard Forum.
The new circular aims to streamline this by automating pledge invocation and sale processes (enhancing business ease and protecting investor interests).
𝐒𝐢𝐧𝐠𝐥𝐞-𝐈𝐧𝐬𝐭𝐫𝐮𝐜𝐭𝐢𝐨𝐧 𝐏𝐥𝐞𝐝𝐠𝐞 𝐑𝐞𝐥𝐞𝐚𝐬𝐞: The circular mandates depositories to provide a new “Pledge release for early pay-in” instruction. When a client sells pledged securities, the broker can issue one instruction that releases the pledge and immediately blocks the required securities in the client’s account for delivery.
𝐁𝐥𝐨𝐜𝐤𝐢𝐧𝐠 𝐈𝐧𝐯𝐨𝐤𝐞𝐝 𝐒𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬: For margin-pledged (or funded stock) shares that are invoked (i.e. margin call triggered), the securities will be blocked for pay-in in the client’s demat account, but only up to the client’s outstanding delivery obligation. A trail of these blocks is maintained in the broker’s margin-pledge account, ensuring transparency.
𝐌𝐮𝐭𝐮𝐚𝐥 𝐅𝐮𝐧𝐝 𝐔𝐧𝐢𝐭 𝐈𝐧𝐯𝐨𝐜𝐚𝐭𝐢𝐨𝐧𝐬: For invoked mutual fund units (that are not exchange-traded), depositories must provide an “invocation cum redemption” function. Invoked MF units move to the broker’s pledge account and are automatically redeemed from there, simplifying the settlement of unlisted fund units.
𝐅𝐫𝐨𝐳𝐞𝐧 𝐀𝐜𝐜𝐨𝐮𝐧𝐭𝐬: If a client’s trading account is frozen (or marked not permitted) after creating a pledge, any invoked securities transfer to the broker’s demat account and are sold under the broker’s own code. To prevent accumulation of client securities, the broker must complete the sale and pay-in on the same day.