SEBI’s Proposal: Changes to Revised Settlement Framework For Inactive Trading Account

The Securities and Exchange Board of India (SEBI) has proposed a revised framework for settling funds in inactive trading accounts. This initiative aims to improve operational efficiency while ensuring that investors’ interests are adequately protected.

Current Settlement Process for Inactive Accounts

At present, stock brokers are required to return funds to clients who have not engaged in any trades for the last 30 days. This process, known as the “running account” or “quarterly settlement,” mandates brokers to identify inactive clients daily and settle their funds within 3 working days. This practice, however, has led to procedural inefficiencies in the market.

Proposed Changes by SEBI

In a recent consultation paper, SEBI proposed a shift from daily monitoring to settling funds of clients inactive for 30 calendar days during the monthly running account settlement cycle. This cycle is already scheduled as per the annual calendars issued by stock exchanges, thereby reducing the administrative burden on brokers.

The Brokers’ Industry Standards Forum (ISF) had raised concerns about the operational challenges posed by daily settlements. They argued that since client funds are already upstreamed to clearing corporations, the risk of misuse is minimal. As a result, the urgency of daily settlements is reduced, making the proposed change more practical.

SEBI’s proposal strikes a balance between operational ease and investor protection. It ensures that client funds are returned in a timely manner while simultaneously reducing the administrative workload for brokers, thus fostering greater efficiency in the system.

Public Feedback and Implementation

SEBI has invited public feedback on the draft circular until December 26, 2024. Stakeholders can submit their comments through SEBI’s official website or via email. If the proposal is approved, the new rules will take effect immediately, with stock exchanges required to update their systems to comply with the revised framework.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.