SEBI draft proposes shorter timelines, faster pledge release for unpaid securities

Mumbai (Maharashtra) [India], April 24 (ANI): The Securities and Exchange Board of India (SEBI) has proposed a series of changes to the framework governing the handling of clients' unpaid securities by trading members and clearing members, aimed at improving ease of doing business while strengthening investor protection.
In a draft circular released on Friday for public comments, among the key proposals, SEBI has suggested providing flexibility to trading members to define a shorter funding period than the current five trading days for clients to meet payment obligations. This aims to remove misconceptions among clients regarding timelines.
It stated "it is proposed to modify the concerned provision to specifically mention that a trading member may, at its discretion, allow unpaid securities for a shorter duration than five trading days from payout and require the client to fulfil the payment obligation within that period"
The regulator has also proposed clear timelines for the release of pledge on securities. If payment is received before 5 PM, the pledge would be released on the same day, while payments received after the cut-off would lead to release by the next trading day.
Further, SEBI has also introduced provisions for partial release of pledged securities, allowing trading members to adjust pledge amounts based on daily assessment of client obligations and security values.
To improve clarity, the draft proposes that if a pledge is neither invoked nor released within five trading days after pay-out, it will be automatically released by depositories at the end of the next trading day.
The draft also addresses scenarios where trading and clearing members are separate entities, proposing re-pledging of securities in favour of the clearing member in such cases. Additionally, provisions have been included to allow extension of pledge timelines in exceptional situations such as trading suspension or market constraints.
The draft outlines changes to the existing "Client Unpaid Securities Pledgee Account" (CUSPA) framework, under which unpaid securities are pledged until clients meet their payment obligations.
SEBI noted that representations from industry bodies highlighted operational challenges and the need for clearer provisions.
It stated "It is proposed to specify that where the TM (Trading Member) and CM (Clearing Member) are separate entities, and the TM has not met the fund obligation towards CM in respect of such securities, the unpaid securities shall be re-pledged in favour of the separate CUSPA account opened by CM"
As per SEBI, the proposed revisions seek to align existing rules with evolving market practices and regulatory developments, while ensuring better clarity and efficiency in operations. The regulator has invited feedback on the proposals by May 15, 2026.
SEBI said the proposed framework aims to enhance transparency, streamline processes, and protect investor interests, while making compliance easier for market participants. (ANI)