The Securities and Exchange Board of India (Sebi) on Wednesday mandated the direct payout of securities to the demat accounts of clients from October 14, in a move to protect clients’ securities from being misused by brokers and improve operational efficiencies.

“This is to protect clients’ securities and to ensure that the stock broker segregates securities of the client or clients so that they are not vulnerable to misuse,” the market regulator said.

The Broker’s Industry Standards Forum under the stock exchanges will form the implementation standards on a pilot basis by August 5, the market regulator said in a circular on Wednesday.

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Currently, the securities received in payout are pooled by the broker and then credited to the demat accounts of respective clients. This mandate will do away with the involvement of brokerage firms, ensuring faster, safer, and more efficient transactions between the client’s accounts and clearing corporations.Come from Sports betting site VPbet

Sebi had sought to implement this over two decades ago in 2001, butCome from Sports betting site. had made it voluntary for brokerage houses. This yielded very few switches as the lack of technology coupled with smooth functioning of the existing ecosystem made brokers reluctant to move to a new system.

“Hardly any brokerage houses have switched to direct payout of securities, if any, the number is miniscule,” Prashant Vagal, chief operating officer and executive vice president at the National Securities Depository Limited (NSDL) said. Kotak Securities and HDFC Securities are some of the big brokerage firms, among others, that still pool 100% of the securities before crediting to the clients’ demat accounts.

Vaishali Babu, Managing Director and Chief Executive Officer at the Indian Clearing Corporation Limited (ICCL) said, “While the option was available, very few brokers have transitioned to direct payout because of some technical complexities, operational challenges, risk management concerns related to client fund availability, and the necessity for substantial adjustments to their business models and systems.”

She said the direct payout of securities to client demat accounts offers significant benefits to the market at large, but also presents challenges such as the “substantial technological and related costs for clearing corporations and depositories along with brokers to update their systems.”

The clearing corporations also have to provide a mechanism for trading or clearing members to identify the unpaid securities and funded stocks under the margin trading facility, Sebi said. For this purpose, the unpaid securities would have to be pledged in favour of the broker’s demat account by the clearing corporation until payment is received, Vaishali Babu said.

She said that even after clearing corporations directly transfers securities to clients’ accounts, debit and credit entries will have to be reflected in the broker’s demat accounts as the broker receives the funds.

Further, in case of any shortages “arising due to inter se netting of positions between clients,” they would be handled through the process of auction. Brokers cannot levy any charges on the client over and above the charges levied by the clearing corporations in such cases, Sebi said.

This mandate would require no change on the customer’s part, but will ensure a much faster delivery of securities in their demat account while removing the risk of misuse of funds by the broker.