Sebi’s New Modifications To Running Account Settlement Causes Buzz On Social Media

Social media went abuzz recently as investors wondered about “unwanted payouts” from their brokerage accounts into their savings bank accounts.

What investors may not have possibly realised is that brokerage accounts are simply following the new rules issued by the Securities and Exchange Board of India (Sebi), which came into effect on October 1.

In a circular, issued in July, the market regulator modified the rules governing the settlement of funds lying in clients’ brokerage accounts.

Investors’ Complaints

Some stock investors and traders complained on social media that despite their funds’ refund initiation happening on the stock brokers’ end on Friday (October 7, 2022), the money reached them on Monday (October 10, 2022) after 3 pm, which blocked their ability to trade on Monday. Some have, however, said that they received their funds back on Saturday (October 8, 2022) itself.

Since there are a lot of intermediaries involved in the fund transfer process, including payment gateways, banks, and others, there could be a delay in funds getting credited to your bank account or your trading account (as per applicability).

Nithin Kamath, CEO, Zerodha, said in a Tweet that “payment gateways settle funds with stock brokers on a T+1 settlement cycle.”

Kamath further added that “if a broker allows you to trade instantly with funds transferred using a payment gateway (PG), the broker's own capital is blocked. On the Monday after account settlement, more funds might be transferred to trade using the payment gateway process.”

What Did Sebi Say?

Sebi said in the circular that the settlement of running account of clients’ funds should be done by the respective stockbrokers “after considering the end of the day (EOD) obligation of funds as on the date of settlement across all the exchanges on the first Friday of the quarter (i.e., Apr-Jun, Jul-Sep, Oct-Dec, Jan–Mar) for all clients.”

Sebi also mentioned that for those clients who wanted a monthly settlement of funds, the running account settlement must happen from the respective stockbroker’s end by the first Friday of every month, and if the first Friday is a holiday, then the settlement must happen on the previous trading day.

Previously, the rule was that your unutilised funds were to be transferred back by the stock broker to your registered bank account on the 30th day of the month.

In other words, if you had deposited Rs 10,000 in your stock trading account on September 30, then the unutilised funds would have to be transferred on the 30th day. So, in essence, this varied from customer to customer since their date of depositing was different.

But now, under the new rules, the unused funds must be transferred back to your registered bank account on the first Friday of the quarter or month.

Is Running Account Settlement Creating A Hindrance?

Sebi has come out with this new modification in existing running account settlement provisions to prevent stockbrokers from utilising idle clients’ funds for any purpose other than what the client originally intended, i.e., to buy and sell securities.

There have been cases in the past in India where stockbrokers allegedly traded in futures and options using unused clients’ funds .