SEBI Mandates the Upstreaming of Client Funds held by Stock Brokers & Clearing Members
With the view of safeguarding the interest of the investors like you and me, SEBI, earlier on 25th April 2023, added a restriction on creating bank guarantees against the fixed deposit created out of client funds held with Stock Brokers(SB) and Clearing Members (CM). Similarly, to protect investors’ interests, SEBI has now mandated all SBs and CMs to upstream all client funds to Clearing Corporation (CC) by the end of the day.
Simply put, SBs and CMs will retain no client fund, and the excess client fund should be transferred to CC by the end of the day. The new restriction was announced on 8th June 2023 and will be effective from 1st July 2023.
Upstreaming funds to a clearing corporation can be done only in cash, a lien on fixed deposit, or a pledge of units of mutual fund overnight schemes (MFOS). FDs and units of MFOS should be liened and pledged in the name of the clearing corporation at all times. Further, the period of FD should not be more than one year.
Units of MFOS (mutual fund overnight scheme) mean the mutual funds which invest in overnight assets like debt instruments, government securities, etc. They are less riskier and provide low returns. According to the norms issued by SEBI, the units of MFOS should be held only in dematerialized form.
To sum up, all these circulars and amendments are introduced by SEBI to protect the interest of the investors. By doing so, SEBI believes in improving the quality of trade and also reducing the number of investor complaints.
