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Brokers retaining their clients funds at the end of a trading day may soon face restrictions. The Securities and Exchange Board of India on Monday proposed norms that would make trading and clearing members move the entire fund to the clearing corporation on the same day.

Under the existing system an portion of investor funds is retained by the broker, while another part remains with the clearing member before the remaining amount is passed on to the clearing corporation. The new system would drastically reduce the risk of fund misuse as well as provide investors with the flexibility to improve returns on the surplus via other financial service providers.

It would however reduce the float income implicitly enjoyed by brokers and CMs. Sebi has sought comments from the public till February 17 on the proposal.

The SEBI consultation paper also suggested that investor funds in surplus of exchange margin requirements could in turn be placed by CCs in very low-risk and liquid overnight money market instruments. The proposal also considers independent daily confirmation to investors around their daily funds position in the securities market ecosystem.

The regulator said that on January 6 - the day of the last running account settlement - about 46,000 crore of investor funds was held with brokers and CMs. This number, the Sebi said, could be even higher during other days. It also noted that the country's 1,355 stock brokers are not subject to all the regulatory safeguards.

(With inputs from agencies)

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