Sebi plans changes to rules on unpaid securities

Market regulator Securities and Exchange Board of India (Sebi), on Friday, proposed changes to rules governing how brokers handle clients’ unpaid securities, aiming to reduce operational friction. The proposals relate to the client’s unpaid securities pledgee account (CUSPA) framework, which governs the treatment of securities purchased by clients but not fully paid for.

The regulator clarified norms around the funding window available to clients. While the current framework allows up to five trading days for payment, the regulator has proposed that brokers may enforce a shorter payment timeline, in line with internal policies.

The regulator also introduced time-bound norms for releasing pledges on unpaid securities. If a client clears dues before 5 p.m., the pledge must be released the same day; otherwise, it must be released by the next trading day, a step Sebi said would improve liquidity and reduce delays in accessing securities.

In addition, Sebi proposed daily reassessment of pledged securities, allowing partial release wherever excess collateral exists, or where clients make part payments.

“It is proposed that, in exceptional cases, where unpaid pledged securities cannot be liquidated within five trading days of payout, such as due to lower circuit conditions, trading suspension, or such other reasons beyond the control of the trading member/ clearing member, the TM/CM may request the depositories to extend the pledge by up to one additional calendar week,” Sebi said.

Further extensions of a similar period may be permitted if such conditions persist. However, once the constraints cease and the securities become saleable, no further extension will be allowed. Failure to seek an extension within the prescribed timeline will result in automatic system-based release of the pledged securities, Sebi said.