The Securities and Exchange Board of India has directed that shares allocated to investors but not fully paid for should be retained in clients’ demat accounts. Brokers will have a formal pledge over these shares until outstanding dues are settled. This move, under the revised framework, involves crediting unpaid securities to the investor’s demat account and automatically pledging them to the broker through a dedicated account.
The objective behind this initiative is to bolster investor protection and bring regulations in line with the current market setup, where securities are directly credited to investors’ demat accounts. Brokers are required to inform clients via email or SMS about pending payment obligations and the potential sale of securities if dues remain unsettled.
It is mandatory for all trading members to establish a policy for managing unpaid securities and communicate this policy to clients before implementation. This policy must outline clear procedures, reasons, methods, timing, etc., related to invoking or releasing pledges and liquidating unpaid securities. Additionally, it should specify the maximum timeframe within which clients must fulfill payment obligations, capped at five trading days from the pay-out date.
While unpaid securities pledged to the Client Unpaid Securities Pledgee Account (CUSPA) may be used for reporting client margin collection to Clearing Corporation, brokers are prohibited from providing exposure to clients based on such securities. The securities will be locked for early pay-in in the client’s demat account upon pledge invocation, with a corresponding record maintained in the broker’s CUSPA account.
In case securities are locked in lower circuits without buyers, trading suspensions, or other exceptional circumstances, brokers can request extensions to retain the pledge until the securities become marketable. SEBI has explicitly forbidden brokers from leveraging pledged securities under the unpaid shares mechanism to secure funding from banks or non-banking finance companies.
