SEBI automates pledged securities sale process to boost efficiency

To facilitate ease of doing business and safeguard the investors' interest, markets regulator Sebi on Tuesday decided to automate the process of invocation and sale of pledged securities.

This comes after Sebi noted that after invoking pledged securities, brokers often don't sell them, resulting in accumulation in broker accounts.

Moreover, brokers face operational issues when clients sell pledged securities, requiring multiple steps like unpledge and delivery, sometimes using physical or digital instructions or POA.

"With a view to facilitate ease of doing business as well as to safeguard the interest of investors, it has been decided to make the invocation and sale as a combined automated process," Sebi said in a circular.

For client-initiated sales, when clients sell pledged securities, depositories will now allow a single instruction to release the pledge and block the securities for early pay-in directly from the client's demat account. This process will eliminate the need for manual instructions or the use of Power of Attorney (POA).

In the case of broker-initiated invocation, when brokers invoke securities due to non-payment, the shares, excluding unlisted mutual funds, will be automatically blocked for early pay-in from the client's demat account.

Additionally, a transaction trail will be maintained in the broker's pledge accounts to ensure transparency and auditability.

For unlisted mutual funds, Sebi has introduced a new 'invocation cum redemption' mechanism. This feature helps brokers to invoke and redeem mutual fund units automatically from their pledge accounts, simplifying operations and reducing delays.

In cases involving frozen or blocked client accounts, the invoked securities will be transferred to the broker's demat account. To prevent unnecessary accumulation, brokers are required to sell these securities on the same day under their proprietary code.

This framework will come into effect on September 5, while depositories are required to issue detailed operational guidelines by July 1.

Earlier, Sebi had mandated brokers to accept securities as collateral only through margin pledges in the depository system.