India rolls out direct payout system for securities transactions
09 October 2024 India
Image: Towering_Goals/stock.adobe.com
India is rolling out a direct payout system, which will change how securities are credited to investors.
Currently, brokers are in charge of transferring securities to the investor, but this will change reflecting the guidelines on “enhancement of operational efficiency and risk reduction” introduced by the Securities and Exchange Board of India (SEBI) in June.
“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,” says SEBI in the paper.
The first phase of implementation will begin on 14 October, and it will run until 12 January 2025.
During this phase, clearing corporations will transfer securities directly to investors’ demat accounts for all equity cash segments and physical settlements.
In cases where the payout cannot be completed, including rejected payouts and inactive demat accounts, the securities will still be temporarily credited to the broker’s pool account.
Phase 2, starting on 14 January 2025, will fully implement the direct payout system, eliminating most of the broker’s involvement in the settlement process.
This will apply to all security transactions, including securities lending and borrowing.
In case of short delivery, the CC will handle auction settlements directly, preventing brokers from sourcing shares from the market or settling through cash close out.
According to Nithin Kamath, founder of Zerodha, this move simplifies depository participant (DP) processes and enhances safety.
In a post on X, Kamath says: “A broker from now on will never be able to touch client securities ever, which is possible today when you buy stocks and are not yet credited to your demat.”
Currently, brokers are in charge of transferring securities to the investor, but this will change reflecting the guidelines on “enhancement of operational efficiency and risk reduction” introduced by the Securities and Exchange Board of India (SEBI) in June.
“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,” says SEBI in the paper.
The first phase of implementation will begin on 14 October, and it will run until 12 January 2025.
During this phase, clearing corporations will transfer securities directly to investors’ demat accounts for all equity cash segments and physical settlements.
In cases where the payout cannot be completed, including rejected payouts and inactive demat accounts, the securities will still be temporarily credited to the broker’s pool account.
Phase 2, starting on 14 January 2025, will fully implement the direct payout system, eliminating most of the broker’s involvement in the settlement process.
This will apply to all security transactions, including securities lending and borrowing.
In case of short delivery, the CC will handle auction settlements directly, preventing brokers from sourcing shares from the market or settling through cash close out.
According to Nithin Kamath, founder of Zerodha, this move simplifies depository participant (DP) processes and enhances safety.
In a post on X, Kamath says: “A broker from now on will never be able to touch client securities ever, which is possible today when you buy stocks and are not yet credited to your demat.”
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