What is Quarterly Settlement of funds and how is the recent SEBI circular dated 27th July 2022 affecting the process?
As you are aware, settlement of running account refers to a SEBI mandated process whereby the funds of the clients lying in their trading accounts are transferred to their registered bank account by the broker either once in a month or quarter – as preferred by the client. Previously, the broker had an option to settle the running account for funds on any day during the month or quarter as the case may be, after retaining the appropriate amount towards future margin requirements. However, with the recent SEBI circular dated July 27, 2022, a broker will now have to compulsorily settle the running account on the first Friday of every quarter.
Hence, starting, October 1, 2022, the settlement of the client’s running account for funds will happen on the first Friday of every month or quarter, as preferred by the client. Thus, first, such settlement, post the new SEBI circular will happen on October 7, 2022, whereby any unused funds lying to the credit of your ledger account will be transferred to the default bank account registered with 5paisa.
How will the revised settlement process affect the client under the following scenarios:
i) Clients who have not traded for a period of 30 days:
For clients who have not executed any trades in their account for the last 30 days and have a credit in their ledger account then irrespective of the last settlement date, the broker will have to mandatorily transfer back the funds from the client’s ledger account to his bank account within next 3 days. This is irrespective of the fact that the client may have opted for a quarterly or monthly settlement of his running account.
ii) Clients who have traded or have an open positions and have debit in their account:
Such clients would be deemed to be settled on the first Friday as mandated by SEBI.
iii) Clients who have traded during the quarter or month but have no open positions:
In a case where the client had traded during the quarter but has no open positions as of the date of settlement, any excess credit in the ledger account will be transferred to the default bank account of the client.
iv) Clients with open positions:
In case of clients having open positions on the settlement date i.e. first Friday, the broker can retain an amount equivalent to the following:
- Entire pay-in obligation of funds, across segments on the settlement date plus
- 50% of the EOD cash margin requirement plus
- 225% of EOD margin reduced by 50% cash margin and value of securities (after haircut). Any credit amount over and above this calculation will have to be transferred to the bank account of the client.
Can a client ask for the exclusion of their account from settling quarterly?
No. Settlement of running accounts is SEBI mandated and neither the client has the option to opt-out nor the broker has an option to exclude any client from the compulsory settlement process. The broker is under the obligation to carry out the running account settlement even if the client consents to the non-settlement of the running account.
If a client has an open position or debit balance, will it be squared off for settling the account?
No. Client's open positions or debit balance shall be subject to the Risk Management Policy of the company and square-off shall happen if the risk parameters are hit or a margin shortfall occurs.
How can a client place a trade after the quarterly settlement?
If a client wish to place trades after a quarterly settlement is effected in your account i.e. after the funds are credited to your bank account, you will have to transfer back the funds to us towards your margin requirements and can place trades thereafter.
Refer to the SEBI's Circular- View