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SEBI relaxes time period for Settlement of Client’s Funds by stock brokers

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SEBI has recently issued a circular with respect to settlement of running accounts of clients’ funds or securities lying with stockbrokers.

Presently, the compliance requirement under the SEBI Master Circular for Stock Brokers entails that the settlement (transferring back of unutilized funds) of clients funds should be undertaken on the first Friday of every quarter i.e. First Friday of October 2022, January 2023, April 2023, July 2023 and so on for all the clients. Further, for clients, who have opted for monthly settlement, running account shall be settled on first Friday of every month.

However, the Broker’s Industry Standards Forum (ISF) had represented to SEBI of the various problems faced by brokers due to single day of settlement viz. hectic activities on the day of settlement leading to chances of errors, missing out on payment timings of banks due to late finalization, delayed instructions, etc. and recommended that brokers may be allowed to settle the running account of clients on Friday and / or Saturday to address these operational difficulties.

SEBI accepting the recommendation has by way of the present circular allowed for the settlement of running accounts of clients on the first Friday and / or Saturday of the quarter / month. The present circular amends the SEBI Master Circular to the effect that quarterly and monthly settlement shall take place on the dates stipulated by the stock exchanges.  

In order to ensure uniformity and clarity with respect to the dates of settlement, SEBI has directed stock exchanges to jointly release the annual calendar for the settlement of running account, both quarterly and monthly, at the commencement of each financial year.

Further, the present circular, to safeguard against any possibility of misuse of one client’s funds to settle another clients’ running account, has directed brokers to ensure that no funds received from a client shall be utilised for settlement of another client and that the Stock Exchanges shall develop a monitoring mechanism to oversee compliance with this directive.

The present SEBI Circular shall be applicable from the quarterly settlement of January-March 2024 and monthly settlement of January 2024.

A copy of the SEBI Circular is enclosed herewith and available on the SEBI website.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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