The Securities and Exchange Board of India (“SEBI”), in exercise of powers conferred under Section 11(1) of Chapter IV of Securities and Exchange of India Act, 1992 read with Regulation 30 of Chapter VII of SEBI (Stock Brokers) Regulations, 1992, vide Circular No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/82,[1] dated June 03, 2025, issued the margin obligations to be given by way of pledge/ re-pledge in the depository system.
Background:
SEBI had earlier mandated, through its circular dated February 25, 2020, and subsequently under Para 41 of the Master Circular for Stock Brokers dated August 09, 2024, that collateral from clients must be accepted by brokers only in the form of securities through the process of ‘margin pledge’. The operational mechanics for initiation, release, and invocation of such pledges were defined in the respective circulars. The provisions laid down herein shall come into effect from September 05, 2025.
Upon identification of certain operational issues and based on industry feedback, particularly from the Brokers’ Industry Standard Forum (Brokers’ ISF), SEBI has introduced key amendments Annexure A of circular dated February 25, 2020, and Master circular for stock brokers, in order to streamline the handling of pledged securities and mitigate accumulation of unsold invoked securities in brokers’ demat accounts. These amendments aim to simplify the process and strengthen compliance and investor protection mechanisms.
Key Regulatory Changes:
- Point 9 (in Annexure A of the Circular dated February 25, 2020) and Para 41.11.9 (Master circular for stock brokers): In cases where a client sells securities which are pledged in favor of a Trading Member (“TM”) or Clearing Member (“CM”) as margin-pledged securities (including pledged funded stocks) or under a Client Unpaid Securities Pledgee Account (CUSPA) pledge, depositories shall offer a functionality enabling a single instruction termed as ‘Pledge Release for Early Pay-In.’ This functionality shall allow the simultaneous release of the pledge and creation of an early pay-in block in the client’s demat account, subject to pay-in validation. This shall be limited to the extent of the client’s delivery obligation as communicated by the Clearing Corporations (“CCs”) to the depositories. The process shall not require any physical instruction, electronic instruction, or reliance on DDPI/ POA.
- Point 16 (in Annexure of the circular dated February 25, 2020) and Para 41.11.16 (Master circular for stock brokers):
- In the event of invocation of margin-pledged securities (including pledged funded stocks) by the TM, the invoked securities, excluding mutual fund units that are not exchange-traded shall be blocked for early pay-in in the client’s demat account. A corresponding trail of such securities shall be maintained in the TM/ CM’s ‘Client Securities Margin Pledge Account’ or ‘Client Securities under Margin Funding Account’. The early pay-in block in the client’s demat account shall be subject to pay-in validation, i.e., limited to the client’s delivery obligation as communicated by the CCs to the depositories.
- For mutual fund units that are not traded on exchanges, depositories shall enable a single instruction mechanism titled ‘Invocation cum Redemption’. Through this, the invoked mutual fund units shall be transferred to the TM/CM’s ‘Client Securities Margin Pledge Account’ and automatically sent for redemption from that account.
- In situations where the client’s trading account is frozen, or the trading code is marked as ‘Not Permitted to Trade’ or an equivalent status by the stock exchanges after pledge creation, the invoked securities shall be transferred to the TM/CM’s demat account. These securities shall be liquidated by the TM/CM using their proprietary code. To avoid accumulation of client securities in the TM/CM’s demat account, it is mandatory for the TM/CM to ensure that the pay-in of such securities is executed on the same day as the invocation.
All other provisions specified in SEBI Circular dated February 25, 2020, and SEBI Master Circular for Stock Brokers dated August 09, 2024, shall continue to remain applicable.
[1]https://www.sebi.gov.in/legal/circulars/jun-2025/margin-obligations-to-be-given-by-way-of-pledge-re-pledge-in-the-depository-system_94363.html