Sebi tweaks framework on upstreaming clients' funds by brokers to clearing corps

New Delhi: To promote ease of doing business, capital markets regulator Sebi on Tuesday tweaked the framework requiring stock brokers or clearing members to upstream clients' funds to clearing corporations.

This came after Sebi received representations from various stakeholders -- stock brokers, and brokers' associations citing certain operational difficulties in the implementation of the framework.

Addressing the issue, Sebi said that stock brokers (SBs) or clearing members (CMs) will upstream all the clients' clear credit balances to clearing corporations (CCs) on the End of Day (EOD) basis.

Such upstreaming will be done only in the form of either cash, lien on Fixed Deposit Receipts (FDRs) created out of clients' funds, or pledge of units of Mutual Fund Overnight Schemes (MFOS) created out of clients' funds.

Stock brokers are required to maintain a designated client bank account to receive funds from their clients. The nomenclature of all such accounts will be changed to either of the two categories of bank accounts -- Up Streaming Client Nodal Bank Account (USCNBA) and Down Streaming Client Nodal Bank Account (DSCNBA), Sebi said in a circular.

In Up Streaming Client Nodal Bank Account, SB/CM will receive clients' funds, while payment to clients will be done only from Down Streaming Client Nodal Bank Account. In addition, CMs, who clear trades for other SBs, will only use the designated bank account maintained with the nomenclature "Name of the CM-TM prop account" to receive or pay proprietary funds from/to stock brokers.

The clients can request SBs/CMs to release funds at any time during the day. All payment requests of the client received on a day will be processed on or before the next settlement day. In cases, where the payment request is not processed on the same day, SB/CMs need to ensure that the funds of the client are placed with a clearing corporation.

To improve operational efficiency and reduce transaction costs, CCs will build a mechanism for the utilisation of surplus unutilised collateral lying with CC in cash form, towards fund pay-in requirements across segments. Further, to improve operational efficiency and to reduce costs, CCs will also facilitate a mechanism to adjust the margin blocked in the form of cash, towards client fund pay-in obligations. The same will be made available by January 1, 2024.

With regards to the eligibility of bank instruments as collateral, Sebi said that the bank instruments provided by clients as collateral cannot be upstreamed to CCs, and they will be ineligible to be accepted as collateral in any segment of the securities market.

However, in the interest of encouraging and developing of hedging in the commodity derivatives market, Sebi has decided to allow bank guarantees provided only by non-individual clients, based on certain terms and conditions.

Such clients will have to provide a declaration and underwriting that they will have no recourse to Sebi or exchanges in case of wrongful invocation of such bank guarantees by stock brokers or clearing members