SEBI - Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs)

Last updated: 12 June 2023

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The Securities and Exchange Board of India (SEBI) has issued a new circular mandating that stock brokers and clearing members must upstream all client funds to clearing corporations by the end of each day. Funds can no longer be retained by brokers or members overnight. These funds must be upstreamed as cash, a lien-marked Fixed Deposit Receipt (FDR), or pledged units of Mutual Fund Overnight Schemes (MFOS). The circular also introduces new bank account nomenclatures for receiving and disbursing client funds and outlines specific cutoff times for fund transfers.

Securities and Exchange Board of India Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/84 Dated: June 08, 2023 To, Stock Brokers through recognized Stock Exchanges Depository Participants through recognized Depositories Clearing Members through recognized Clearing Corporations Dear Sir/Madam, Subject: Upstreaming of clients funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs) 1. SEBI, through various circulars issued from time to time, has

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FAQ :

The main change is that stock brokers and clearing members can no longer retain client funds overnight. All client funds must be 'upstreamed' to clearing corporations by the end of each trading day.

Client funds can be upstreamed in three ways: as cash, via a Fixed Deposit Receipt (FDR) that is lien-marked to a clearing corporation, or by pledging units of Mutual Fund Overnight Schemes (MFOS) to a clearing corporation.

Yes, FDRs must be lien-marked to a clearing corporation, have a tenure of no more than one year, be pre-terminable, and the principal amount must remain protected. Brokers cannot use these FDRs to avail banking facilities.

Stock brokers and clearing members must now use two types of accounts: an 'Upstreaming Client Nodal Bank Account' (USCNBA) to receive client funds for upstreaming, and a 'Downstreaming Client Nodal Bank Account' (DSCNBA) for payments to clients.

The provisions of this circular come into effect from July 1, 2023.

Yes, the rules do not apply to bank-clearing members, proprietary funds of stock brokers or clearing members, or a stock broker's proprietary funds held with a clearing member as a client.