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What is SEBI's New Account Settlement System?

Sep 26, 2022

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In today's Current Affairs editorial, we will discuss the New Account Settlement system introduced by Security Exchange Board of India (SEBI). Read this blogpost to enhance your UPSC CSE preparation and also to find the topic's relevance to the IAS syllabus.

For Prelims: Securities and Exchange Board of India (SEBI), Running Account Settlement’ or ‘Quarterly Settlement of Funds.

For Mains: The New Account Settlement System, Impact on Investors and Other Market Participants, SEBI’s New Guidelines, Financial sector development

Probable Question

Why SEBI has introduced new guidelines for the account settlement process? How it will differ from the previous system. Explain.

Context

The new account settlement system for the stock broking industry, would be effective from October 1, as per the Securities and Exchange Board of India (SEBI) new guidelines in July 2022. 

About the Settlement System

  • Currently, the stockbrokers are required to settle the available credit balance from the trading account to the primary bank account of the customer that is linked to the trading account, at least once a quarter (90 days) or 30 days. 
  • This process of transferring or settling the unutilized funds back into the primary bank account is called ‘Running Account Settlement’ or ‘Quarterly Settlement of Funds’.
  • as all of them would get settled on the same day.
Securities and Exchange Board of India (SEBI):
It was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India.

It was established as a statutory body in the year 1992.

The provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) came into force on January 30, 1992.

Basic functions of the Securities and Exchange Board of India:
To protect the interests of investors in securities.
To promote the development of, and to regulate the securities market.
Also for matters connected therewith or incidental thereto"

SEBI can also regulate any money pooling scheme worth Rs. 100 cr. or more and attach assets in cases of non-compliance after the Securities Laws (Amendment) Act, 2014. 

Read yesterday’s edition of Current Affairs on 19th ASEAN-India Economic Ministers’ Meeting, in case you missed reading it.

SEBI’s New Settlement Guidelines

  • SEBI issued new guidelines on running accounts of client funds and securities lying with the broker. 
  • As per the new guidelines, the settlement of running accounts of clients’ funds will be done by the trading members after considering the end of the day (EOD) obligation of funds as on the date of settlement.
  • The latest guidelines for the new account settlement, requires settling the available credit balance on the first Friday of the quarter or the month depending upon the option selected by the customer.
  • In case the first Friday of the quarter is a trading holiday, then “such settlement shall happen on the previous trading day”.
  • This guideline will be effective from October 1, 2022.

Also Read: National Income Accounting

Impact on Investors and Other Market Participants

  • The changes in settlement have had the aim of protecting the investor and preventing the misuse as money lying in trading accounts of investors for long periods.
  • It will help brokers develop a system just like banks, which credit interest in the accounts of their customers at the end of the quarter.
  • It would ease the process of tracking accounts for the users who have multiple demat accounts.
  • News Source: The Indian Express

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