SEBI Circular on - Margin obligations to be given by way of Pledge/Re-pledge in the Depository System

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Date of Issue: 3-6-2025               

Issuer: SEBI

Margin obligations to be given by way of Pledge/Re-pledge in the Depository System

Highlights of SEBI Circular dated June-3-2025

Background

• Under existing norms (SEBI Circular dated Feb 25, 2020 & Master Circular dated Aug 09, 2024), brokers are only allowed to accept securities as collateral via margin pledge.
• However, two major issues have been identified:
  1. Accumulation of invoked securities in brokers' demat accounts that remain unsold.
  2. Operational complexity when clients sell pledged securities (manual un-pledge and delivery steps).

Key Amendments (Effective from Sept 05, 2025)

1. Combined Invocation and Sale Process

SEBI mandates automation for invocation and sale of pledged securities to avoid manual effort and reduce delays.

2. New Functionalities Introduced by Depositories

a. Pledge Release for Early Pay-in :

• When a client sells pledged securities, depositories will offer a "single instruction" system.
• This will automatically release the pledge and set up early pay-in block to meet the client’s delivery obligation.
• Eliminates need for physical instruction, electronic instruction, or DDPI/POA.

b. Auto Sale of Invoked Securities:

• Upon invocation by TM/CM, securities (except unlisted mutual funds):
  
  Will be blocked in client’s demat account for early pay-in.
  Trail of movement will be maintained in broker’s margin pledge account.
  Pay-in will be validated based on actual delivery obligation.
• For mutual fund units not traded on exchange: A new instruction type, "invocation cum redemption", will automate their redemption.

3. Client Restrictions & Frozen Accounts

• If a client is not allowed to trade (e.g., trading code frozen):

Invoked securities will be transferred to TM/CM’s account.
Broker must sell them under proprietary code.
Pay-in must occur on the same day of invocation to avoid buildup.

Implementation Timeline

Action Points for Stakeholders

For Brokers:

• Prepare systems to integrate single instruction mechanism.
• Monitor client trading status to act promptly on invocation.
• Ensure same-day pay-in of invoked securities.

In case of any clarification or assistance required in the implementation of this circular, you may contact       

Kaushik Jethwa - kau...@secmark.in / 9870210171

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