Capital Markets: Challenges and Developments

New Account Settlement System for Stock Trading


From UPSC perspective, the following things are important :

Prelims level: Account settlement, T+1

Mains level: NA

Beginning October 1, the new account settlement system for the stock broking industry will kick in under the new guidelines issued by the Securities and Exchange Board of India (SEBI).

What is Settlement of Accounts?

  • The SEBI mandates stockbrokers to settle i.e., transfer the available credit balance from trading account to bank account, at least once in a quarter (90 days) or 30 days.
  • The process of transferring the unutilised funds back into the bank account is called ‘Running Account Settlement’ or ‘Quarterly Settlement of Funds’.
  • The funds are transferred back to the primary bank account of the customer that is linked to the trading account.
  • As per the latest guidelines, the settlement will now be done on the first Friday of the quarter or the month depending upon the option selected by the customer.

What are SEBI’s new settlement guidelines?

  • On July 27, SEBI issued new guidelines on running accounts of client funds and securities lying with the broker.
  • As per the new guidelines, with effect from October 1, 2022, the settlement of running account of clients’ funds will be done by the trading members after considering the end of the day (EOD) obligation of funds.
  • In cases where the client has opted for a monthly settlement process, then the running account shall be settled on the first Friday of every month.

How will it impact investors and traders?

  • Changes in settlement brought in by SEBI over the last few years have had the aim of protecting the investor and preventing the misuse as money lying in trading accounts of investors for long periods.
  • SEBI’s move will give certainty to investors and trading members.
  • It will help brokers develop a system just like banks, which credit interest in the accounts of their customers at the end of the quarter.
  • Another advantage would be that if a customer has more than one demat account with different brokers, having one settlement date for the entire industry will make it easier for her to keep track of her funds.

Back2Basics: Securities and Exchange Board of India (SEBI)

  • The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
  • It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

Jurisdiction of SEBI

  • SEBI has to be responsive to the needs of three groups, which constitute the market:
  1. Issuers of securities
  2. Investors
  3. Market intermediaries

SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.

  • It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
  • Though this makes it very powerful, there is an appeal process to create accountability.
  • There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
  • A second appeal lies directly to the Supreme Court.


Also read:

SEBI introduces T+1 Settlement System


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