SEBI Automates the Process of Invocation—Sale of Pledged Securities

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  • Last Updated on 5 June, 2025

SEBI margin pledge automation

Circular No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/82; dated: 03-06-

The Securities and Exchange Board of India (SEBI) has taken a significant step to enhance the efficiency and transparency of the margin pledge mechanism by automating the process of invocation and sale of pledged securities.

1. Background – Margin Pledge System

Earlier, SEBI had mandated that brokers accept client collateral only through margin pledges, aiming to ensure better protection of client assets and prevent misuse. Under this system, clients could pledge their securities with brokers to meet margin requirements without transferring ownership.

2. Key Issue – Unsold Invoked Shares

However, SEBI observed that once shares were invoked (i.e., transferred to the broker’s demat account due to margin shortfall or default), they were often left unsold, leading to an unintended accumulation of client securities in the broker’s demat account. This not only raised operational inefficiencies but also posed risks related to asset management and compliance.

3. Operational Challenges for Brokers

Brokers also reported practical difficulties in executing client instructions for selling pledged securities. The manual processes involved in invocation and subsequent sale led to delays, mismatches, and operational burdens, hampering timely execution and increasing the potential for disputes.

4. New Mechanism – Automated Invocation and Sale

To resolve these issues, SEBI has now mandated an automated, integrated process for both invocation and sale of pledged securities. This means that once securities are invoked due to a default or margin breach, their sale will be automatically triggered through predefined systems and processes, thereby:

  • Reducing manual intervention
  • Enhancing operational efficiency
  • Minimising the risk of share accumulation in broker accounts
  • Ensuring faster realisation of funds

5. Impact on Investors and Brokers

This move is expected to streamline margin enforcement, provide greater clarity to clients, and protect investor interests by ensuring prompt action. For brokers, the automation will simplify compliance and reduce administrative overhead, enabling smoother trading operations.

Click Here To Read The Full Circular

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied