SEBI Bars Trading Members From Pledging Certain Securities Of Clients

The Securities and Exchange Board of India (SEBI) has barred trading members from pledging certain securities of clients to banks and NBFCs (non-banking finance companies) even with their authorization.

This would be applicable for clients' securities lying with the Trading Member (TM)/ Clearing Member (CM) in client collateral, client margin trading securities and client unpaid securities accounts.

The stricter norms comes against the backdrop of crisis in the NBFC sector. The new requirements will be effective from 1 September.

"Securities lying with TM/CM in client collateral account, client margin trading securities account and client unpaid securities account shall not be permitted to be pledged/transferred to Banks/NBFCs for raising funds by TM/CM," the regulator said in a circular.
Besides, "with regard to securities that have not been paid for in full by the clients (unpaid securities), a separate client account titled - client unpaid securities account - shall be opened by the TM/CM" it added.

The regulator further said all the existing client securities accounts opened by the TM/CM other than pool account, client margin trading securities account and client collateral account shall be wound up on or before 31 August.

The closing of specified accounts as well as opening of clients' unpaid securities accounts need to be reported to respective exchanges / clearing corporation within a given time frame in a prescribed format, it said.

Non-compliance/non reporting shall attract penal action as per the bye-laws of stock exchange.
SEBI also asked exchanges and clearing corporations and depositories to put in place a monitoring mechanism with respect to handling of clients' securities.