Sebi changes rules on unpaid client securities to ease broker operations

Published 3 July 2026 · finance

Capital markets regulator Sebi has changed the rules for how stock brokers handle client securities that have not been fully paid for, in a move

Capital markets regulator Sebi has changed the rules for how stock brokers handle client securities that have not been fully paid for, in a move aimed at aligning market practices with the direct payout system and reducing operational difficulties for brokers.The changes come after representations from the Brokers’ Industry Standards Forum, which sought revisions to reflect current regulatory and market conditions. SEBI said the decision was taken to improve ease of doing business for brokers and ease of investing for clients.Under the revised framework, for trades not covered under the margin trading facility, unpaid securities will be directly credited to the client’s demat account. After that, an auto-pledge will be created in favour of a separate account opened by the trading member, called the “client unpaid securities pledgee account,” or CUSPA. The pledge will carry the reason “unpaid” and will not need any specific instruction from the client.The broker will also have to inform the client through email or SMS about the pending payment obligation and its right to sell the securities if the client does not pay.

SEBI has asked trading members to frame a clear policy for handling such unpaid securities. This policy must explain the process, reasons, manner and timing for release or invocation of the pledge and liquidation of securities. The client must be given a maximum period of five trading days from the payout date to meet the payment obligation.From WhatsApp chats to food orders: How Sebi cracked a Rs 144 crore stock manipulation schemeSebi has also clarified that while such unpaid securities pledged to the broker’s CUSPA may be considered for reporting client margin collection to the clearing corporation, the broker cannot give fresh exposure to the client on the basis of these securities. This means the securities may support margin reporting, but cannot be used to allow additional trading limits.The circular also lays down how excess pledged securities should be released. Brokers must check the value of pledged securities daily against the client’s ledger balance, margin obligation or other factors that may be specified by exchanges.

If the pledged value is higher than what is allowed, the broker must release the excess securities by the next trading day.If the client does not pay within the prescribed period, the broker may invoke the pledge and sell the unpaid securities after giving reasonable notice. The sale will be done in the market using the client’s unique client code. Any surplus funds left after settling the client’s obligation must be credited to the client’s ledger.A key investor protection measure is the auto-release provision. If the pledge is neither invoked nor released within five trading days after payout, depositories will automatically release the pledge at the end of the sixth trading day. The securities will then become free balance in the client’s demat account, without any encumbrance.Sebi has also barred brokers from further pledging or transferring CUSPA-pledged securities to banks or non-bank lenders to raise funds. In exceptional cases, such as lower circuit stocks with only sellers, trading suspension, halt due to surveillance or other valid reasons recognised by market infrastructure institutions, brokers may seek an extension of the pledge by up to one additional calendar week.Stock exchanges have been asked to issue operational guidelines within 30 days.