SEBI Bars Stock Brokers/Clearing Members from Creating Bank Guarantees on Clients’ Funds

Circular No. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/061, Dated: 25.04.2023

The SEBI has barred Stock Brokers (SBs) and Clearing Members (CMs) from pledging their clients’ funds with banks. Presently, stock brokers and clearing members pledge their clients’ funds with banks, which in turn issue bank guarantees (BGs) to clearing corporations for higher amounts.

Now, from May 01, 2023, no new bank guarantees shall be created out of clients’ funds by stock brokers. Also, existing BGs created out of clients’ funds must be wound down by September 30, 2023.

Further, the stock exchanges and clearing corporations must take stock of the current position of the BGs issued out of clients’ funds by SBs/CMs and monitor the wind down to ensure implementation of the circular without any disruption of services to clients.

For this purpose, stock exchanges and clearing corporations shall put in place periodic reporting mechanisms for SBs/CMs.

Also, the provisions of this framework shall not be applicable for proprietary funds of SBs/CMs in any segment and SB’s proprietary funds deposited with CM in the capacity of a client.

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