SEBI devises system to track client securities

Aims to detect misuse of collateral

The Securities and Exchange Board of India (SEBI) has developed an in-house system to track the movement of client securities that are collected as collateral by brokers.

“SEBI has developed the in-house capabilities to track, online, the movement of client securities collected by the broker as collateral and raise alerts with exchanges if diversion of clients’ securities is noticed,” SEBI said in a release.

“This system is likely to detect the misuse of clients’ securities collected by brokers as collateral or received in pay-out of securities,” the release added, while highlighting the fact that three ‘mismatch reports’ had already been forwarded to the stock exchanges for reconciliation with members.

There had been instances of brokerages using client securities to raise funds for themselves. The most high-profile case was that of Karvy Stock Broking, which has been barred from getting new clients on board.

“In the recent past years, it has been observed that some brokers have misused clients’ securities received as collateral to meet their own settlement obligation or obligations of other clients. Some brokers have also misused clients’ securities by pledging them with banks and NBFCs to raise funds for their own use,” SEBI said.

SEBI has already taken a slew of measures to minimise such misuse, including an early warning mechanism to detect diversion of clients’ funds and securities; restricting the broker from pledging clients’ securities even with the consent of the client; transferring securities to the client account or Client Unpaid Securities Account (CUSA) within 24 hours of payout; and mapping of Unique Client Code with the demat account of the client to detect diversion of payout of securities.

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Printable version | Feb 20, 2020 12:59:20 PM |

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