SEBI's New Guidelines for Direct Payout for Securities
After you have bought a security, the process of these securities credited to your demat account involves diverse mechanisms. The Securities and Exchange Board of India (SEBI) has issued new rules for direct payout for securities that will change how securities will be credited in investors' demat accounts. These new guidelines laid by SEBI focus on making payouts safe and efficient, providing reassurance to investors about the streamlined process. This article highlights new rules by SEBI and how they will affect the payout process and the investors.
How are Securities Credited to An Investor Demat Account Presently?
When securities are purchased, the Clearing Corporation (CC), credits them to the chosen stock market broker in India account. The broker later transfers the securities to the investor's demat account. So until the transfer takes place, the control of securities is held by the broker. Under the new guidelines of SEBI, the securities will be directly credited to the investor's demat account. These new changes will occur in two phases, beginning from 14 October 2024 to 1 November 2024, and the second phase will occur from 14 January 2025.
What is a Direct Payout for Net Settlement?
The direct payout for net settlement is another method used to credit shares to an investor. Here's how it works:
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For instance, if a share market broker in India has 100 buyers and 50 sellers, 50 buyers will be matched with 50 sellers, and the CC credits the shares directly to the remaining 50 buyers.
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If 10 sellers do not deliver the shares, which means they are short-delivered, the stockbroker must acquire them from the market or in an auction.
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If the shares are not acquired through auction the settlement is done at close-out rate.
How Will SEBI's New Guidelines for Direct Payout for Securities Change This Process?
As per SEBI's new guidelines, the changes will be rolled out in two phases, minimizing the role of brokers and allowing CC to credit securities directly into investors' accounts.
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Phase 1: 14 October, 2024 to 13 January, 2025
In the first phase, CC will directly transfer shares to the investor's demat account. These changes will apply to all equity cash segments and physical settlements. However, in case of rejected payouts, inactive accounts or excess pay-in forms from a clearing member, the securities will still be temporarily credited to the broker's account.
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Phase 2: Beginning from 14 January, 2025
In the second phase, the direct payout system will apply to all security transactions, including Securities Lending and Borrowing (SLB) and Offer for Sales (OFS), reducing the role of brokers in the settlement process.
Under new SEBI rules, in case of short delivery, the CC will be responsible for auction settlements, eliminating the involvement of brokers in sourcing shares from the market or settling cash close out.
Impact of SEBI's New Guidelines for Direct Payout for Securities on Investors
SEBI's new guidelines will have a minimal effect on investors, ensuring a smooth transition. These changes reduce the complications and make the payout process safer and more efficient. These new guidelines aim to streamline the payout process and improve the system. Aadtiya Wealthon is the top stock market broker in India that uses integrated telephony, CRM and modern platforms for a seamless trading experience. To know more about the new guidelines, speak to our experts.
