SEBI recently issued Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/110 Dated: June 30, 2023 amending the framework for the upstreaming of clients’ funds by Stock Brokers (SBs) and Clearing Members (CMs) to Clearing Corporations (CCs). This new framework aims to safeguard the financial interests of clients and ensure smoother transactions within the country’s securities market.
The original circular, numbered SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/084, released on June 8, 2023, stipulated that no clients’ funds should be retained by SBs/CMs on an end-of-day (EoD) basis. However, practical difficulties such as opening bank accounts have necessitated amendments to the circular.
The major changes made include conditions allowing SBs/CMs to receive funds from clients beyond the prescribed cutoff time for upstreaming, as long as no further movement from that account takes place till the next day. Another significant modification involves the tenor of Fixed Deposit Receipts (FDRs). Originally, the circular stated FDRs could not be more than a year in duration. Now, they can last a year and a day, and must be pre-terminable on demand. These changes aim to offer increased flexibility and protect the interests of clients.
The circular clarifies that existing FDRs created out of clients’ funds and having tenor of more than one year, issued prior to the release of the circular, will be allowed to continue until maturity.
Conclusion: SEBI’s revised circular offers pragmatic solutions to issues raised by various stakeholders, including stock brokers and associations. The new framework not only ensures the protection of client funds but also considers the operational challenges faced by SBs/CMs. With this modification in the framework, SEBI continues to uphold its responsibility to regulate and develop India’s securities markets, whilst protecting the interests of investors. Future compliance with these regulations is vital for the continued growth and stability of India’s financial markets.
Securities and Exchange Board of India
Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/110 Dated: June 30, 2023
To,
Stock Brokers through recognized Stock Exchanges
Depository Participants through recognized Depositories Clearing Members through recognized Clearing Corporations
Dear Sir/Madam,
Subject: Implementation of circular on upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs)
1. SEBI, vide circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/084 dated June 08, 2023 (herein after referred to as “circular”), has specified the framework for upstreaming of clients’ funds by SBs/CMs to CCs, which inter-alia states the following:
“As per the framework, no clients’ funds shall be retained by SBs/ CMs on End of Day (EoD) basis. The clients’ funds shall all be upstreamed by SB/ CMs to CCs only in the form of either cash, lien on FDR (subject to certain conditions enumerated below), or pledge of units of Mutual Fund Overnight Schemes (MFOS).”
2. Representations have been received from various stakeholders viz. MIIs, stock brokers, and associations that the changes to the systems are still under progress, and that there are certain practical difficulties in implementation of the proposal framework, including around opening of bank accounts. In view of the same, while the SBs/CMs shall adhere to the basic requirement of upstreaming of clients’ funds to CCs, as stated in clause 1 above, the provisions of the circular stand modified as under:
2.1. Clause 3.C.V of the circular may be read as follows:
“SBs/CMs may receive funds from clients beyond the prescribed cutoff time for upstreaming subject to the condition that there shall not be any further movement of funds from that account (i.e., a debit freeze) till the opening of upstreaming window on the next day.
Further, stock exchanges shall ensure that such funds remaining in bank accounts of SB/CM are minimal and are for legitimate purposes.”
2.2. Clause 3.A.I.d of the circular may be read as follows:
“The tenor of such FDRs shall not be more than one year and one day; and the FDRs should be pre-terminable on demand.”
2.3. It is clarified that existing FDRs (created out of clients’ funds and having tenor of more than one-year) created prior to issuance of the circular shall be allowed to be grandfathered till maturity. Such FDRs at the time of renewal shall meet the conditions specified at clause 3.A.I of the circular.
2.4. The provisions of the circular stated at clause 3.C.II, 3.C.III, 3.C.V, 3.C.IX, 3.C.XI shall come into effect from September 01, 2023.
3. Stock exchanges, Clearing Corporations and Depositories are directed to bring the provisions of this circular to the notice of their members/participants and also disseminate the same on their websites.
4. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.
Yours faithfully,
Bithin Mahanta
General Manager
Tel.No: 022 26449634
bithinm@sebi.gov.in
