Sebi Mandates Lenders To Give Advance Notice Before Sale Of Pledged Shares; Ends Expiry-Day Margin Benefit For Single-Stock Derivatives

The Securities and Exchange Board of India (Sebi) has tightened the regulatory framework for creating and invoking pledges of securities through depositories to protect the interest of pledgers. In a circular dated February 5, 2026, the market regulator mandated lenders to issue a reasonable notice to the pledger before invoking or selling pledged securities. This means borrowers must be informed in advance of any enforcement action, giving them clarity and time to respond, and ensuring that the pledge invocation process is carried out in a fair and transparent manner.

To operationalise this, Sebi has mandated that pledge request forms must explicitly include legal undertakings from both parties. According to the new insertion, “the pledgee undertakes to provide reasonable notice to the pledger and comply with the requirements of Sections 176 and 177 of the Indian Contract Act, 1872.”

Further, both parties will have to confirm that they will abide by all applicable laws. Sebi said “the pledger and pledgee undertake to abide with the provisions of the Indian Contract Act, 1872, the Depositories Act, Sebi Regulations, circulars, and bye-laws in force from time to time.”

The regulator has also asked depositories to maintain a “standardised format of the Pledge Request Form” to ensure uniformity across the system.

Sebi has further mandated that when a pledge is invoked, depositories will have to immediately notify both the pledger and the pledgee, clearly stating that the pledge has been enforced and that the pledgee has been recorded as the “beneficial owner” of the securities. This removes any ambiguity around when control shifts and ensures both sides have a clear, official record of the change at the depository level.

The circular said: “The depositories shall send an intimation/notification to both pledger and pledgee confirming that the pledge has been invoked and the pledgee has been recorded as ‘beneficial owner’.”

The regulator has also directed depositories to amend their bye-laws, carry out necessary system changes and inform their participants about the circular. The regulator has set April 6, 2026 as the deadline for implementing the new provisions.

No Calendar Spread Margin Benefit On Expiry Day For Single-Stock Derivatives

In a separate circular issued the same day, Sebi has withdrawn the calendar spread margin benefit on the expiry day for single-stock derivatives.

Sebi noted that while such a restriction already exists for index derivatives, it did not apply to single stocks. Based on feedback from trading members and deliberations with Sebi’s Secondary Market Advisory Committee (SMAC), the regulator decided to plug potential risks.

Sebi also clarified that “the benefit of offsetting positions across different expiries shall not be available on the day of expiry for contracts expiring on that day for single stock derivatives.”

However, it added that margin treatment for other calendar spreads will remain unchanged.

“The existing margin calculations for calendar spread positions shall remain unchanged for calendar spread positions involving all expiries other than the contracts expiring on a given day,” the circular said.

Explaining the rationale, the regulator said the move would “align calendar spread treatment for single stocks derivatives with that on index derivatives” and give market participants time to arrange additional margin or roll over positions. Sebi cautioned that without this restriction, there is a risk of “sudden increase in margin on the day following expiry of one leg of the calendar spread position.”

The circular will come into effect three months from the date of issuance. Sebi has also directed stock exchanges and clearing corporations to put in place the required system changes and amend relevant bye-laws to implement the new norms.