SEBI to Automate Pledge Invocation and Sale Process for Brokers from September 2025
SEBI will automate the pledge invocation and sale process for brokers from September 2025 to streamline operations and prevent the accumulation of unsold client securities.
The Securities and Exchange Board of India (SEBI) has issued a new circular introducing a huge revision to the way brokers handle pledged client securities. The revised framework aims to streamline the invocation and sale of pledged securities, reduce delays, and enhance operational efficiency within the capital markets. Background Under the current framework, brokers accept...
The Securities and Exchange Board of India (SEBI) has issued a new circular introducing a huge revision to the way brokers handle pledged client securities. The revised framework aims to streamline the invocation and sale of pledged securities, reduce delays, and enhance operational efficiency within the capital markets.
Background
Under the current framework, brokers accept client securities as margin through a pledge mechanism. But, once these securities are invoked due to client default or margin shortfall, they often remain unsold in the broker’s demat account, defeating their purpose of recovering dues. Brokers face operational challenges when a client sells their own pledged securities, requiring multiple manual steps like unpledging and initiating delivery.
To address these inefficiencies and operational hurdles, SEBI is now implementing a fully automated process for handling such situations.
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Key Changes Introduced
1. Single Instruction for Pledge Release and Early Pay-In
SEBI has directed depositories to enable a single-step instruction — "Pledge release for early pay-in" — when a client sells pledged securities. This means:
- The pledge is automatically released.
- The securities are blocked for early pay-in without requiring physical or electronic instructions or use of POA/DDPI.
This simplifies the process and reduces turnaround time for clearing obligations.
2. Automatic Blocking on Invocation by Brokers
When a broker invokes pledged securities due to a client’s default:
- The securities (except mutual fund units) will be blocked for early pay-in directly in the client’s demat account.
- A trail will be maintained in the broker’s “Client Securities Margin Pledge Account” or “Margin Funding Account”.
This ensures the shares are sold or used promptly, avoiding idle accumulation.
3. Auto Redemption of Mutual Fund Units
In case of mutual fund units (not traded on the exchange), a single instruction — ‘invocation cum redemption’ — will be allowed. These units will:
- Be transferred to the broker’s account.
- Be automatically redeemed without extra manual steps.
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4. Special Handling for Inactive Clients
If a client's trading account is frozen or marked “Not Permitted to Trade”:
- Invoked securities will move to the broker’s account.
- Brokers must sell them under their proprietary code the same day to prevent backlogs.
Implementation Timeline
- July 1, 2025: Depositories will issue detailed operating guidelines.
- September 5, 2025: Full implementation of the new system.
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