The Securities and Exchange Board of India (SEBI) on June 30, 2023, issued a circular regarding the Implementation of a circular on upstreaming of clients’ funds by Stock Brokers (SBs)/Clearing Members (CMs) to Clearing Corporations (CCs).
SEBI, vide circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/084 dated June 08, 2023, 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).”
Various stakeholders, including MIIs, stock brokers, and associations, have expressed concern that the proposed system changes are still being made and that there are some practical challenges to implementing them, including those related to opening bank accounts.
In light of this, while SBs/CMs must adhere to the basic need of upstreaming clients' cash to CCs, as mentioned in clause 1 above, the circular's provisions have been adjusted as follows:
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.”
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.”
The provisions of the circular are stated in clauses 3.C.II, 3.C.III, 3. C.V, 3.C.IX, 3.C.XI shall come into effect from September 01, 2023.
[Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/110]
