Handling of Client’s Unpaid Securities by Trading Members

 Circular No.: HO/38/11/(9)2026-MIRSD-POD/I/15382/2026

Date: 3 July 2026
Subject: Handling of Client's Unpaid Securities by Trading Members (TMs)

Executive Summary

The Securities and Exchange Board of India (SEBI) has amended Paragraph 46 of the Master Circular for Stock Brokers dated 17 June 2025 to rationalise the framework governing unpaid securities of clients.

The amendments take into account the current settlement ecosystem, particularly the mandatory direct credit of securities to clients' demat accounts, and seek to simplify operational processes while continuing to protect investor interests. The revised framework introduces an auto-pledge mechanism, lays down detailed obligations of Trading Members (TMs), prescribes timelines for pledge release and invocation, prohibits re-pledging of unpaid securities, and provides a mechanism for extension of pledge in exceptional circumstances.

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Background

The earlier framework governing unpaid securities was introduced through SEBI Circulars dated 20 June 2019 and 11 November 2022.

Following changes in market infrastructure, including direct pay-out of securities into clients' demat accounts and operational representations received from the Brokers' Industry Standards Forum (ISF), SEBI has revised these provisions to improve:

• ease of doing business for stock brokers,
• operational efficiency,
• investor protection, and
• regulatory consistency.

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Major Amendments

1. Auto-Pledge of Unpaid Securities

Instead of retaining unpaid securities with the broker, securities will first be credited directly to the client's demat account.

Immediately thereafter:

• an automatic pledge (without any client instruction) will be created,
• the pledge will be marked with the reason "Unpaid",
• the pledge shall be created in favour of a dedicated account called the Client Unpaid Securities Pledgee Account (CUSPA) maintained by the Trading Member.

Practical Impact

This ensures that:

• ownership remains with the client,
• the broker receives adequate security against unpaid dues, and
• the earlier operational complexity of retaining securities in broker accounts is eliminated.

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2. Mandatory Communication to Clients

Immediately after creation of the pledge, the Trading Member must inform the client through email or SMS regarding:

• outstanding payment obligation, and
• the broker's right to liquidate the pledged securities upon default.

Significance

This improves transparency and ensures clients are aware of the consequences of delayed payment.

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3. Risk Management Policy

Every Trading Member must formulate a written policy (either separately or as part of its Risk Management Policy) covering:

• invocation procedure,
• release procedure,
• liquidation methodology,
• timelines,
• reasons for invocation,
• maximum payment period.

The payment period cannot exceed five trading days from pay-out.

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4. No Trading Exposure Against Unpaid Securities

Although unpaid pledged securities may continue to be considered for reporting client margin to the Clearing Corporation, brokers cannot grant any trading exposure against such securities.

Regulatory Intent

This removes leverage on unpaid assets and reduces systemic risk.

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5. Daily Review of Pledged Securities

Trading Members must review the pledge every day.

If the pledged value exceeds the permissible amount (based upon ledger balance, margin obligations or exchange guidelines), the excess pledge must be released by the next trading day.

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6. Invocation and Liquidation

Where payment is not received within the prescribed timeline:

• TM may invoke the pledge,
• reasonable notice must be given,
• securities shall be blocked in the client's demat account,
• securities will be sold using the client's Unique Client Code (UCC),
• surplus proceeds, if any, shall be credited to the client's ledger.

Importance

The revised mechanism preserves audit trail and transparency while ensuring orderly liquidation.

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7. Automatic Release of Pledge

If the Trading Member neither invokes nor releases the pledge within five trading days after pay-out:

• the depository shall automatically release the pledge at the end of the sixth trading day,
• securities become freely available to the client.

This prevents indefinite blocking of client securities.

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8. Restriction on Re-Pledging

CUSPA pledged securities cannot be pledged or transferred to Banks or NBFCs for raising finance.

Regulatory Objective

SEBI seeks to ensure that client assets are not used by brokers for their own borrowing requirements.

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9. Extension in Exceptional Cases

Where liquidation is impossible because of:

• lower circuit with only sellers,
• trading suspension,
• surveillance restrictions,
• unforeseen circumstances recognised by Market Infrastructure Institutions,

the Trading Member may request extension of pledge by one calendar week.

Further extensions are permitted only if the exceptional circumstances continue. Each extension requires client communication. Failure to seek extension in time results in automatic release of pledge.

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Implementation Timeline

Provision	Effective Date
Operational Guidelines by Stock Exchanges	Within 30 days of Circular
Paragraphs 46.1–46.11	Three months after operational guidelines
Paragraphs 46.12–46.14	Six months from date of Circular

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Regulatory Impact

Impact on Trading Members

Trading Members will be required to:

• establish CUSPA accounts,
• modify back-office systems,
• automate pledge creation and release,
• monitor pledged securities daily,
• frame comprehensive internal policies,
• maintain communication records,
• revise operational workflows,
• train dealing and compliance teams.

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Impact on Depositories

Depositories will need to:

• facilitate automatic pledge creation,
• provide automatic release functionality,
• support extension requests,
• maintain system audit trails.

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Impact on Investors

Investors benefit through:

• continued ownership of securities,
• greater transparency,
• automatic release of securities where brokers fail to act,
• protection against misuse of securities,
• defined timelines and procedural safeguards.

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Key Compliance Requirements

Trading Members should ensure:

• Opening of CUSPA account.
• Adoption of Board-approved policy on unpaid securities.
• Client communication before implementation.
• Daily monitoring of pledge values.
• Timely release of excess pledge.
• Notice before invocation.
• Sale through client's UCC.
• Credit of surplus sale proceeds.
• No onward pledge to banks/NBFCs.
• Timely extension requests in exceptional circumstances.

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Overall Assessment

The circular marks a significant evolution in SEBI's framework governing unpaid client securities. It balances investor protection with operational flexibility by recognising that securities are now credited directly to clients' demat accounts while preserving brokers' ability to recover unpaid dues through a tightly regulated auto-pledge mechanism.

The introduction of automatic release, prohibition on onward pledging, mandatory client communication, and clearly defined timelines substantially strengthen investor safeguards. At the same time, the provision permitting extension of pledge in exceptional market circumstances addresses genuine practical challenges faced by Trading Members.

Overall, the amendments are expected to improve transparency, reduce operational disputes, minimise misuse of client assets, and align the regulatory framework with the modern securities settlement infrastructure

investment advisor

 This SEBI Circular (HO/38/12/11(5)2026-MIRSD-POD/I/14660/2026 dated June 24, 2026) introduces a significant regulatory relaxation aimed at simplifying certification requirements for certain categories of Persons Associated with Investment Advice (PAIA). The circular reflects SEBI's continuing commitment to balancing investor protection with operational efficiency by adopting an "Ease of Doing Business" approach.

The principal amendment distinguishes between personnel who are actively engaged in rendering investment advice and those whose responsibilities are confined to sales, relationship management, and other non-core client-facing functions. While core advisory personnel must continue to obtain the existing NISM Series-X-A (Level 1) and Series-X-B (Level 2) certifications, staff performing only sales and non-core services are now permitted to qualify through the newly introduced NISM Series-XXV-B: Persons Associated with Investment Advice (Sales and Other Non-Core Services) Certification Examination. This targeted differentiation reduces the compliance burden on employees whose roles do not involve providing investment advice.

A noteworthy feature of the circular is its transitional provision. Existing PAIAs who have already obtained the Level 1 and Level 2 certifications are not required to immediately undertake the newly prescribed Series-XXV-B examination. Instead, they may continue relying on their current certifications until expiry, at which point the revised certification requirement becomes applicable. This grandfathering provision ensures a smooth transition while avoiding unnecessary duplication of certification efforts.

Key Highlights

• Introduces a simplified certification regime for PAIAs performing only sales and non-core functions.
• Retains the existing two-tier certification framework for personnel directly involved in investment advisory activities.
• Provides transitional relief for currently certified personnel through a grandfathering mechanism.
• Reinforces SEBI's broader objective of promoting regulatory efficiency without diluting investor protection.
• Comes into force with immediate effect.

Overall Assessment

This circular represents a pragmatic and business-friendly regulatory reform. By aligning certification requirements with the actual nature of employees' responsibilities, SEBI has reduced avoidable compliance costs while preserving rigorous qualification standards for professionals engaged in investment advice. The distinction between advisory and non-advisory roles is likely to improve operational flexibility for registered Investment Advisers without compromising regulatory oversight or investor interests.

Overall, the circular is a well-calibrated measure that advances SEBI's ongoing agenda of ease of doing business through proportionate regulation, while maintaining the integrity and professionalism expected within the investment advisory ecosystem.

buy back

The SEBI Board has approved amendments to the SEBI (Buy-back of Securities) Regulations, 2018, aimed at enhancing flexibility in buy-back mechanisms, simplifying compliance requirements, reducing procedural costs, and strengthening investor protection.

Key amendments include the reintroduction of open market buy-backs through stock exchanges with effect from 1 August 2026, in addition to the existing tender offer and book-building routes. To improve shareholder awareness, companies undertaking such buy-backs will be required to disseminate buy-back information electronically, alongside existing newspaper disclosures.

To prevent indirect participation by promoters, securities held by promoters and their associates will remain frozen at the ISIN level during the buy-back period. Further, all buy-backs will be required to comply with minimum public shareholding norms, and the interval between two buy-backs has been aligned with the provisions of the Companies Act, 2013.

In a significant ease-of-doing-business measure, the appointment of a Merchant Banker for buy-backs has been made optional. Where a company chooses not to appoint a Merchant Banker, the associated responsibilities will be discharged by the company, its compliance officer, statutory auditor, secretarial auditor, and stock exchanges.

The amendments are intended to streamline the buy-back framework, improve operational efficiency, reduce compliance costs, and reinforce safeguards against promoter dealings during the buy-back period.

Transmission of securities

 SEBI Board Meeting – Key Decisions Taken on 19 June 2026

1. Simplification and Standardisation of the Framework for Transmission of Securities

The Securities and Exchange Board of India ("SEBI"), at its Board Meeting held on 19 June 2026, approved a series of measures aimed at simplifying and streamlining the framework governing the transmission of securities upon the demise of an investor. The reforms are intended to facilitate faster and more efficient transmission of securities to legal heirs and other eligible claimants while reducing procedural complexities.

1.1 Introduction of Quick Transmission Processing (QTP)

SEBI has approved the introduction of a new category of Quick Transmission Processing (QTP) for small-value claims. Under this mechanism, transmission requests involving securities valued up to:

• ₹10,000 in the case of physical holdings; and

• ₹30,000 in the case of dematerialised holdings,

shall be processed through a simplified procedure with minimal documentation requirements, thereby enabling expeditious settlement of such claims.

1.2 Enhancement of Thresholds for Simplified Documentation

In order to extend the benefit of simplified documentation to a larger number of claimants, SEBI has approved the enhancement of the existing monetary thresholds as follows:

• From ₹5 lakh to ₹10 lakh per listed company in respect of physical holdings; and

• From ₹15 lakh to ₹30 lakh per beneficial owner in respect of dematerialised holdings.

1.3 Documentation and Procedural Simplifications

The revised framework incorporates several significant measures aimed at reducing the compliance burden on claimants while enhancing operational efficiency for intermediaries. Key changes include:

(a) Dispensation with the requirement of furnishing a Permanent Account Number (PAN), considering that PAN details are already available in the demat account opening records.

(b) Removal of the mandatory requirement to obtain Probate of a Will, in alignment with recent amendments to the applicable succession laws.

(c) Permission to submit a combined Affidavit-cum-No Objection Certificate (NOC) in lieu of separate affidavits and NOCs.

(d) Recognition of death certificates bearing a QR Code as valid documentary evidence, in addition to original or duly attested copies, thereby facilitating easier verification.

(e) In cases where death certificates are issued by foreign jurisdictions, provision of additional verification mechanisms through overseas branches of Indian banks or foreign banks maintaining correspondent banking relationships with Indian banks.

1.4 Expected Impact

The approved measures are expected to significantly simplify the transmission process, expedite claim settlement, reduce associated costs, and alleviate procedural hardships faced by legal heirs and claimants.

1.5 Stakeholder Consultation

The proposals were deliberated in consultation with the Industry Standards Forum for Registrars to an Issue and Share Transfer Agents (RTAs) and the Association of Mutual Funds in India (AMFI). The final framework also incorporates feedback received pursuant to the consultation paper issued by SEBI on 12 March 2026.