SEBI has mandated upstreaming of all client funds received by Stock Brokers (SBs)/Clearing Members (CMs) to Clearing Corporations (CCs) with a view to safeguard clients’ funds placed with SBs/CMs.
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 up streamed by SB/ CMs to CCs only in the form of either cash, lien or pledge of units of Mutual Fund Overnight Schemes (MFOS).
Upstreaming via pledge of units of Mutual Fund Overnight Schemes (MFOS)
Units of Mutual Fund Overnight Schemes (MFOS) is a new avenue being made available to SBs/ CMs to deploy client funds into. MFOS ensures minimal risk transformation of client funds (that are withdrawable on demand) available with SBs/ CMs because of overnight tenure and exposure to only risk-free government securities.
SBs/CMs shall ensure that client funds are invested only in such MFOS that deploy funds into risk-free government bond overnight repo markets and overnight Tri-party Repo Dealing and Settlement (TREPS). Such MFOS units should be in dematerialized (demat) form, and must necessarily be pledged with a CC at all times.
SBs/CMs shall maintain a dedicated demat account for subscription/ redemption of MFOS units. The depositories shall allow subscription/redemption transactions only in the said account.
Withdrawal of client funds
The SBs/CMs may seek withdrawal of client funds from CCs only under following scenarios:
- Client unpaid securities obligations/ MTF Obligations
- Loss due to sale of unpaid securities
- Penalties
- Statutory levies (STT / Stamp Duty / SEBI Turnover Fee)
- Brokerage (including exchange transaction fee)
- Other charges (DP charges, etc.)
- Funds to be released to client on account of regulatory requirements such as running account settlementh)
- Funds withdrawal request from client
Monitoring mechanisms
The stock exchanges and CCs shall create an SOP for monitoring the implementation of provisions of this Circular and put in place a uniform penalty structure for non-compliance.
Link: https://www.sebi.gov.in/legal/circulars/jun-2023/upstreaming-of-clients-funds-by-stock-brokers-sbs-clearing-members-cms-to-clearing-corporations-ccs-_72380.html
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