This means that the unused funds lying with brokers will have to be transferred back to the customer account after considering end-of-day (EOD) obligations. Thereby, the running account of funds shall be settled on the first Friday of October 2022, January 2023, April 2023, July 2023, and so on for all the clients. If the first Friday is a trading holiday, then such settlement shall happen on the previous trading day.
As specified by market regulator Securities and Exchange Board of India (SEBI), the actual settlement of funds and securities shall be done by the member depending on the mandate of the client and there must be a gap of maximum 90 / 30 days (as per the choice of client viz. Quarterly / Monthly) between two settlements of running account.
In a statement in July this year, Sebi said the circular has been issued, "to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets."
“So, if your Zerodha account balance reduces or you receive funds in your bank this Saturday, you know why. Until now, account settlement (AS) was spread across a quarter. The idea of doing this in one day, I guess, is another way to test if brokers are misusing client capital in any way," explained online brokerage firm Zerodha's chief executive officer (CEO) Nithin Kamath in a series of tweets on Thursday.
He further explained that the AS regulation is kind of unique to India. In most countries, brokers, like banks, can hold unused funds forever & also use them for working capital requirements. In India, client funds can only be used for that customer's trades after all the regulatory changes.
Kamath added that “If I were to bet, I'd say there will be upward pressure on brokerage rates over the next few years due to all the regulatory changes. While these changes are good in terms of customer safety, they will lead to increased working capital requirements for the broking industry."
Sebi has asked stock exchanges to continue online monitoring of timely settlement of running account for funds of client and to verify that excess clients’ funds are not retained by the trading members as on the date of settlement of running account.
