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General Studies 2 >> Polity

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ACCOUNT SETTLEMENT SYSTEM BY SEBI

ACCOUNT SETTLEMENT SYSTEM BY SEBI


1. Background

  • Under the new guidelines issued by the Securities and Exchange Board of India (SEBI) the trading members will have to settle the accounts on a monthly or quarterly basis on the first Friday of the month or quarter.
  • Account settlements can bring account balances to zero. 
  • These settlements might also arise when two parties complete offsets, which can leave a positive balance for one party. 
  • Account settlement in legal agreements means ending a dispute over money. 

2. About

  • The market regulator mandates stockbrokers to settle i.e., transfer the available credit balance from trading account to bank account, at least once in a quarter (90 days) or 30 days. 
  • The process of transferring the unutilised funds back into the bank account is called ‘Running Account Settlement’ or ‘Quarterly Settlement of Funds’ and the funds are transferred back to the primary bank account of the customer that is linked to the trading account.
  • As per the latest guidelines, the settlement will now be done on the first Friday of the quarter or the month depending upon the option selected by the customer.

3. Guidelines issued by SEBI

  • SEBI issued new guidelines on running accounts of client funds and securities lying with the broker. 
  • As per the new guidelines, with effect from October 1, 2022, the settlement of running account 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 across all the exchanges on the first Friday of the quarter (i.e., Apr-Jun, Jul-Sep, Oct-Dec, Jan–Mar) for all the clients. 
  • It further said that if the first Friday of the quarter is a trading holiday, then “such settlement shall happen on the previous trading day”.

4. Concerns of  market participants

  • When the new system will become operational. As it will be the first Friday for the industry, brokers are anxious as they feel that the bunching of all settlements on one day (as against individual settlement dates for different clients in 30 or 90 days) may create challenges for the industry as a whole.
  • “Brokers will have to organize cash which could otherwise be in their working capital. 
  • Decline in volumes in the following trading session as clients will have to transfer funds from their bank accounts to their trading accounts to trade”.
5. Impact on investors and traders
  • Changes in settlement brought in by SEBI over the last few years have had the aim of protecting the investor and preventing the misuse of money lying in trading accounts of investors for long periods.
  • SEBI’s move will give certainty to investors and trading members.
  • Industry experts say that 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.
  • Another advantage would be that if a customer has more than one Demat account with different brokers, having one settlement date for the entire industry will make it easier for her to keep track of her funds in all accounts as they would all get settled on the same day.

6. About SEBI

  • SEBI is a statutory body established on April 12, 1992, by the provisions of the Securities and Exchange Board of India Act, 1992.
  • Before SEBI came into existence, the Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
  • In April 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
  • Initially SEBI was a non-statutory body without any statutory power.
  • It became autonomous and given statutory powers by SEBI Act 1992.

7. Structure of SEBI

SEBI has a corporate framework comprising various departments each managed by a department head. There are about 20 departments under SEBI. Some of these departments are corporation finance, economic and policy analysis, debt and hybrid securities, enforcement, human resources, investment management, commodity derivatives market regulation, legal affairs, and more. The hierarchical structure of SEBI consists of the following members:

  • The chairman of SEBI is nominated by the Union Government of India.
  • Two officers from the Union Finance Ministry will be a part of this structure.
  • One member will be appointed from the Reserve Bank of India.
    Five other members will be nominated by the Union Government of India.

 

8. Functions of SEBI

  • SEBI is primarily set up to protect the interests of investors in the securities market.
  • It promotes the development of the securities market and regulates the business.
  • SEBI provides a platform for stockbrokers, sub-brokers, portfolio managers, investment advisers, share transfer agents, bankers, merchant bankers, trustees of trust deeds, registrars, underwriters, and other associated people to register and regulate work.
  • It regulates the operations of depositories, participants, custodians of securities, foreign portfolio investors, and credit rating agencies.
  • It prohibits insider trading, i.e. fraudulent and unfair trade practices related to the securities market.
  • It ensures that investors are educated on the intermediaries of securities markets.
  • It monitors substantial acquisitions of shares and take-over of companies.
  • SEBI takes care of research and development to ensure the securities market is efficient at all times.

 

9. Authority and Power of SEBI

The SEBI has three main powers: 

  1. Quasi-Judicial: SEBI has the authority to deliver judgements related to fraud and other unethical practices in terms of the securities market. This helps to ensure fairness, transparency, and accountability in the securities market. 
  2. Quasi-Executive: SEBI is empowered to implement the regulations and judgements made and to take legal action against the violators. It is also authorized to inspect Books of accounts and other documents if it comes across any violation of the regulations. 
  3. Quasi-Legislative: SEBI reserves the right to frame rules and regulations to protect the interests of the investors. Some of its regulations consist of insider trading regulations, listing obligations, and disclosure requirements. These have been formulated to keep malpractices at bay. Despite the powers, the results of SEBI’s functions still have to go through the Securities Appellate Tribunal and the Supreme Court of India.



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