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SEBI asks brokers to return idle cash to investors

Posted on 16 August 2010,    
 6153 Views   Share Report

SEBI asks brokers to return idle cash to investors

Concerned over brokers misusing the funds lying in investors' trading accounts, market watchdog SEBI has asked the brokerage entities to return the clients' un-utilised cash at the end of every month or quarter.

Although some brokers are resisting the move citing high costs associated with such frequent transfers of funds to and from the clients' accounts, the SEBI has also asked them to transfer within a day the funds withdrawn by the investors.

The Securities and Exchange Board of India (SEBI) has asked the stock exchanges to ensure compliance from their broking members and the bourses have in turn sought these regulations to be implemented by all the brokers in true spirit, a senior official at a leading brokerage said.

As per the SEBI directive, the brokers would need to settle the accounts of their clients at the end of every month or quarter, whatever is desired by the customer.

Pursuant to this, brokers would need to transfer the funds lying in a client's trading account to the attached bank account electronically, or through cheques if no internet banking account is attached.

Besides, the brokerage would also have to send out a monthly or quarterly statement of funds, as per the client's choice, so that the investor is well-versed with the status of cash or securities lying in the trading accounts and can get back to the broker in seven days if any discrepancy is found.

Generally, investors also tend to keep some cash, whether fresh or those from sale of shares, in their trading accounts for instant access to funds needed for future buy orders.

At the time of opening the trading accounts, brokers ask the investors to give them 'Running Account Authorisation', which makes the funds readily available for future buy orders.

However, there have been cases when the brokers use these funds for market dealings without the knowledge of the client and then return the funds back into accounts whenever the customer needs it. The new norms are mainly aimed at checking these kinds of fraudulent activities, sources said.

Besides, brokers generally take 2-3 days to transfer the funds withdrawn by the clients from their trading accounts. However, the SEBI has now made it mandatory to return of such funds within one working day or 24 hours.

Following the rap from SEBI and stock exchanges, the brokerages are now informing their respective customers about the changes in their "running account authorisation", giving them the option to get back the un-utilised funds at the end of every month or quarter.

The brokers would need to get these "running account authorisation" from their clients every year and the client would have a right to revoke such authorisation at any point.
However, the brokers are allowed to retain the outstanding pay-in obligations of funds from the clients as on the date of settlement.



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