According to Sebi, the circular was released to safeguard the interests of stockholders, encourage the growth of the securities markets, and regulate them.
Every month on the first Friday, as part of the new account settlement procedure, all brokerages are required to pay excess cash back to the client’s bank account. According to the new regulations, account settlement must take place on the first Friday of the month or quarter, depending on the client’s preference.
This means that any unused funds held by brokers must be sent back to the customer account after taking into account end-of-day (EOD) requirements. As a result, the running account of funds for all clients will be settled on the first Friday of October 2022, January 2023, April 2023, July 2023, and so on. If the first Friday of the month is a trading holiday, the such settlement must take place on the preceding business day.
The actual settlement of funds and securities will be done by the member depending on the mandate of the customer, as stipulated by the market regulator Securities and Exchange Board of India (SEBI), and there must be a gap of a maximum of 90 / 30 days (as per the client’s option viz.
Sebi stated in a July statement that the circular was issued “to protect the interests of investors in securities and to support the growth and regulation of securities markets.”
“Now you know why your Zerodha account balance is decreasing or you receive dollars in your bank this Saturday.” Previously, account settlement (AS) was spread out across a quarter. The notion of doing this in one day, I guess, is another approach to evaluate if brokers are squandering client funds in any way,” explained Nithin Kamath, CEO of online brokerage service Zerodha, in a series of tweets on Thursday.
He went on to say that the AS regulation is unique to India. In most jurisdictions, brokers, like banks, can keep unused funds indefinitely and use them for working capital needs. After all legislative modifications, client funds in India can only be utilized for that customer’s trading.
“If I had to wager,” Kamath said, “I’d say there will be increasing pressure on brokerage rates over the next few years owing to all of the regulatory changes.” While these measures are beneficial to customer protection, they will increase the brokerage industry’s working capital requirements.”
Sebi has directed stock exchanges to continue online monitoring of the timely settlement of running accounts for client funds and to ensure that surplus client funds are not kept by trading members as of the date of settlement of running accounts.
