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Business News/ Markets / Stock Markets/  Zerodha's Nithin Kamath hails SEBI mandate: ‘Direct payout of securities to clients will boost safety of assets’
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Zerodha's Nithin Kamath hails SEBI mandate: ‘Direct payout of securities to clients will boost safety of assets’

SEBI said in its paper that the securities for payout should be credited directly to the respective client's demat account by the clearing corporations.

SEBI specified various processes for handling of clients' securities with regard to pay-in and pay-out of securities.Premium
SEBI specified various processes for handling of clients' securities with regard to pay-in and pay-out of securities.

Capital markets regulator Securities and Exchange Board of India (SEBI) has proposed making the process of direct payout of securities to the client's account mandatory, in order to enhance the operational efficiency and reduce the risk to clients' securities. Nithin Kamath, co-founder and chief executive officer (CEO) of online stock brokerage firm Zerodha has hailed SEBI's new mandate and said that if implemented, it significantly simplifies the DP or depository participant operations of stock brokers.

Currently, the clearing corporation credits the pay-out of securities in the pool account of the broker, who then credits the same to the respective client's demat accounts. A facility of direct delivery to investors was introduced in February 2001.

"It has been decided that the process of securities payout directly to the client account shall now be mandatory," said SEBI in its consultation paper. The securities for payout should be credited directly to the respective client's demat account by the clearing corporations.

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Commenting on the same, Kamath took to social media platform ‘X’ and said, ‘’Today, when a client buys stock, it gets credited to the broker pool account, and then the broker credits it to the customer. In the new way proposed, the shares will get directly credited to the customer's demat.''

‘’Even without this regulation, we're probably the safest financial market in terms of the security of customer assets, given that everything is in the customer's own demat. This regulation will further enhance that,'' said Kamath.

Moreover, clearing corporations should provide a mechanism for Trading Member(TM)/clearing members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

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In case of any shortages "arising due to inter se netting of positions between clients" -- internal shortages -- SEBI suggested TM or CM should handle such shortages through the process of auction. Moreover, in such cases, the brokers should not levy any charges on the client over and above the charges levied by the clearing corporations.

Industry experts are of the view that SEBI's proposal of mandatory pay-out of securities directly to client accounts will fortify investor interest, by further protecting client securities which are currently pooled by the broker and then credited to respective client demat accounts. 

‘’Receivables book and margin trade funding operations won't be impacted as clearing corporations shall provide mechanism for identifying unpaid securities and funded stock under margin trading facility,'' said Deep Inder Singh, Vice President & Sector Head, ICRA.

In May 2023, SEBI specified various processes for handling of clients' securities with regard to pay-in and pay-out of securities. This was 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. The market regulator has sought comments from the public till May 30 on the proposal.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 10 May 2024, 06:31 PM IST
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