“Starting this October 7th, first Friday of every quarter (once in 3 months), all brokerages must transfer unused funds back to the customer's bank account as part of the new account settlement (AS) process. I guess it will be more than ₹25,000 crores across the industry," the Zerodha chief stated.
Kamath also said that an individual's account balance on Zerodha might reduce or he/she may receive funds in their bank accounts this Saturday. “So if your Zerodha account balance reduces or you receive funds in your bank this Saturday, you know why," he wrote on Twitter.
The idea of doing this in one day, Kamath believes, is another way to test if brokers are misusing client capital in any way.
“Btw, 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," the Zerodha boss noted.
He also said that in India, client funds can only be used for that customer's trades after all the regulatory changes.
Listing “few issues" of the broking industry, Kamath said:
1. Operational risk of sending large amounts in one single day.
2. Much higher working capital requirement, especially on Monday after AS.
3. Hit on float income.
Sebi's new guidelines on settlement of running account
Capital markets regulator Securities and Exchange Board of India (Sebi) recently came out with fresh guidelines on settlement of running accounts of clients' funds lying with stock brokers. This will be applicable from 1 October.
Under the new guidelines, the settlement of the running account of funds of the customer will be done by the trading member 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 for all the clients.
The running account of funds will be settled on the first Friday of October 2022, January 2023, April 2023, July 2023, and so on for all the clients, Sebi said in a statement.
If the first Friday is a trading holiday, then such settlement will happen on the previous trading day.
For those, who have opted for monthly settlement, running accounts will be settled on the first Friday of every month. If the first Friday is a trading holiday, then such settlement will happen on the previous trading day.
In market parlance, the process of transferring back the unused funds of the clients to their accounts by stock brokers is called running AS.
As per the guidelines, stock brokers need to reverse the unutilised funds lying in the clients' trading accounts at least once within a gap of 30 or 90 days between two settlements of running accounts as per the preference of the client.
Also, for the clients, who have not done any transaction in the 30 calendar days, funds will be returned to the client within the next three working days irrespective of the date when the running account was previously settled.
With agency inputs
