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Mismatch Could Prompt SEBI To Tighten Norms to Curb Broker-Client Money Soon

A mismatch could lead SEBI to tighten regulations to limit brokers’ handling of customer funds, affecting market volatility in the near future.

Brokers must now refund unused funds to client accounts at least once every quarter under a new rule in India’s Stock Exchanges, which has revealed a major fund mismatch.

A mismatch could lead SEBI to tighten regulations to limit brokers’ handling of customer funds, affecting market volatility in the near future.

SEBI announced in July that it had created A Framework To limit the risk of client funds being misused. SEBI is in opposition to brokers Collecting Additional Collateral from consumers due to the recent wave of broker failures and the incident involving Karvy Broking’s Misuse Of client collateral.

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SEBI gave advise to brokers to separate each client’s money and not pool it in a pool account that began in February. 

As a result, SEBI gave advise to brokers to separate each client’s money and not pool it in a Pool Account, which began in February. However, there are a few brokers who still have to comply with this law.

The rule is rather unique to India. In most countries, brokers can keep unused funds indefinitely and use them for working capital needs. After all regulatory modifications, client funds in India can only be used for that customer’s trading.

On October 6, CEO and Founder of Zerodha Nithin Kamath tweeted That As Part of the new process, beginning October 7th, all brokerages must transfer unused funds back to the customer’s Bank Account On the first Friday of Each Month.

He added that he thinks the industry will spend more than 25,000 crore and that the rule is rather unique to India. In most countries, banks can keep unused funds indefinitely and use them for working capital needs. After all the regulatory changes, client funds in India can only be used for that customer’s trading. It would have an impact on the broker’s income from float.

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On October 7th, the carried out the account-settling process by market regulator SEBI got under way. 

On October 7th, the carried out the account-settling process by market regulator SEBI got under way. During the process, it was found that while brokers withdrew between 16,500 and 20,000 crore from stock market clearing corporations (CCs), the actual amount refunded to clients was between 25,000 and 30,000 crore.

According to sources, the disparity has raised concerns that certain large brokers were not depositing all of their Clients Funds with CCs, instead keeping a part of them as Liquid float.

According to a regulatory official, the disparity could lead to SEBI tightening standards to limit broker handling of client funds.

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Even though the last settlement on Friday, October 7th, went through without a problem, brokers are concerned that they will face a few issues

According to a large retail broker, the disparity could be due to brokers returning customer money before Friday and not depositing it with the CCs. Otherwise, since brokers began daily reporting on customer collateral, the potential for misconduct has decreased.

Even though the last settlement on Friday, October 7th, went through without a problem, brokers are concerned that they will face a few issues. It included operational risks associated with sending large amounts of money in a single day, the need for more working capital, on Monday after the Friday settlement of The Account Hit on float income, and so on.

On a one-day plus one basis, payment gateways also settle funds with brokers. As a result, the broker’s own capital is limited if he or she allows clients to trade immediately using money sent through a payment gateway.

As part of its borrowing strategy for the months of October through March, the Finance Ministry had previously announced that it would issue $160 billion worth of sovereign green bonds (H2FY23). With this, India would join a group of just 25 countries whose governments have so far entirely funded green infrastructure and climate sustainability projects and initiatives through the issuance of bonds.

Edited by Prakriti Arora

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