Capital markets regulatory Securities and Exchange Board of India (SEBI) has proposed making the process of direct payout of such securities to the client’s account mandatory, in order to enhance the operational efficiency and reduce the risk to clients’ securities. Nithin Kamath, co-founder and chief executive officer (CEO) of online stock brokerage firm Zerodha has hailed SEBI’s proposal and said that if implemented, it significantly simplifies the DP operations of stock brokers.
Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective client’s demat accounts. A facility of direct delivery to investors was introduced in February 2001.
“It has been decided that the process of securities payout directly to the client account shall now be mandatory,” said SEBI in its consultation paper. The securities for payout should be credited directly to the respective client’s demat account by the clearing corporations.
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Commenting on the same, Kamatha took to social media platform ‘X’ and said, ‘’Today, when a client buys stock, it gets credited to the broker pool account, and then the broker credits it to the customer. In the new way proposed, the shares will get directly credited to the customer’s demat.”
‘’Even without this regulation, we’re probably the safest financial market in terms of the security of customer assets, given that everything is in the customer’s own demat. This regulation will further enhance that,” said Kamath.
Moreover, clearing corporations should provide a mechanism for Trading Member(TM)/clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.
In case of any shortages “arising due to inter se netting of positions between clients” — internal shortages — SEBI suggested TM or CM should handle such shortages through the process of auction. Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.
In May 2023, SEBI specified various processes for handling of clients’ securities with regard to pay-in and pay-out of securities. This was to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse. The market regulator has sought comments from the public till May 30 on the proposal.
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Published: 10 May 2024, 06:31 PM IST
