Summary of this article
Sebi has proposed new rules to handle unpaid securities
Brokers can prescribe reduce timelines for making payments
The Securities and Exchange Board of India (Sebi) has proposed a set of reforms to streamline how unpaid securities are handled, with an aim to reduce ambiguity in existing rules while strengthening investor protection and operational efficiency across financial systems.
One of the key proposals put forward by Sebi aims to clarify the timeline available to investors for making payments. While there has been a general perception of a five-day window, the regulator said in the report dated April 25, 2026 that brokers may prescribe shorter timelines based on their internal risk management policies. This move is expected to remove confusion and give brokers greater flexibility in managing credit risk.
Unpaid securities typically arise when an investor purchases shares, but fails to make the required payment within the stipulated time. In such cases, the shares are held in a Client Unpaid Securities Pledgee Account (CUSPA), where they remain pledged with the broker until the outstanding dues are cleared. Over time, market participants have flagged inconsistencies and operational challenges in the current framework, prompting Sebi to revisit the rules.
Sebi has also proposed faster release mechanisms for pledged securities once payments are received. Under the revised framework, securities could be released on the same day if payment is completed before a specified cut-off time, typically 1700 hours or 5:00 pm. Payments made after this deadline would result in the release of securities on the next trading day. This change is aimed at improving liquidity and ensuring that investors regain control of their holdings without unnecessary delays.
Another change is the introduction of partial release of securities. At present, investors may face restrictions even after making part payments. The proposed rules would allow brokers to release securities proportionate to the amount paid, with such adjustments carried out on a daily basis. This is expected to enhance fairness and provide investors with greater flexibility in managing their positions.
Sebi has also sought to bring clarity to the automatic release of securities. In situations where pledged shares are neither sold by the broker nor released within a defined timeframe, depositories would step in to automatically free these securities. This provision aims to prevent prolonged holding of client assets and ensure timely resolution.
In cases involving separate brokers and clearing members, the regulator has proposed allowing the re-pledging of unpaid securities to the clearing member’s account. This would facilitate smoother settlement processes and reduce operational friction in the clearing and settlement mechanism.
Additionally, Sebi acknowledged the need for flexibility during exceptional circumstances, such as market disruptions, trading suspensions, or unforeseen events. The proposed framework allows for limited extensions in such scenarios, ensuring that participants are not unduly penalised during periods of stress.
Overall, the reforms are designed to simplify processes, enhance transparency, and align the regulatory framework with evolving market practices, including the direct credit of securities to investors’ demat accounts. By addressing long-standing ambiguities and introducing more structured timelines, Sebi aims to strike a balance between operational ease for intermediaries and robust safeguards for investors. The proposals have been released as part of a consultation process, and feedback from stakeholders will be considered before the rules are finalised.
