SEBI revises rules for handling client unpaid securities by brokers

What SEBI has changed

On 3 July 2026 the Securities and Exchange Board of India issued circular HO/38/11/(9)2026-MIRSD-POD/I/15382/2026, Handling of Client’s Unpaid Securities by Trading Members. It is addressed to recognised stock exchanges, depositories and stock brokers, and replaces paragraph 46 of the Master Circular for Stock Brokers dated 17 June 2025. That paragraph brought together earlier circulars of 20 June 2019 and 11 November 2022 on unpaid securities.

SEBI says it received representations from the Brokers’ Industry Standards Forum asking for the provisions to be revised to suit the current regulatory and market environment.

Key provisions

• Auto-pledge to CUSPA. Securities for which the client has not paid in full continue to be paid out directly to the client’s demat account. They are then auto-pledged, without specific client instruction, in favour of the trading member’s client unpaid securities pledgee account (CUSPA). The client must be told about the payment obligation and the broker’s right to invoke the pledge.
• Written policy. Trading members must have a policy, either standalone or as part of their Risk Management Policy, that sets out the reasons, manner and timing of invocation and release. The time allowed to clients for payment cannot exceed five trading days from the pay-out date.
• Daily pledge value. The maximum value that may remain pledged is worked out daily from the client’s ledger balance and margin obligations, as the exchanges specify. Any excess must be released by the next trading day.
• Invocation and sale. If the client does not pay, the broker may invoke the pledge after reasonable notice and sell the securities using the client’s Unique Client Code. Any surplus goes back to the client’s account.
• Automatic release. If the pledge is neither invoked nor released within five trading days after pay-out, the depositories will release it automatically at the end of the sixth trading day.
• No re-pledge. Securities pledged to a CUSPA cannot be pledged or transferred to banks or NBFCs.
• Exceptional circumstances. Where sale is not possible, for example because of a lower circuit, a trading halt or other unforeseen events, the broker may ask for a one-week extension by 6 PM on the fifth trading day after pay-out. Further extensions are possible if the conditions continue.

Effective dates

Stock exchanges are to issue operational guidelines within 30 days of the circular. Paragraphs 46.1 to 46.11 take effect three months after those guidelines are issued. Paragraphs 46.12 to 46.14, on exceptional circumstances, take effect six months from the date of the circular (3 July 2026). Brokers should follow their exchange’s circulars for the exact go-live dates.

Who is affected

• Stock brokers and trading members whose clients do not always pay in full by pay-out
• Depository participants and depositories, which run the auto-pledge and automatic release
• Authorised persons, who deal with clients on the broker’s behalf and often field questions on pledges and sell-offs

What brokers should do

1. Update the unpaid securities policy. Revise the standalone or risk management policy to cover the five-trading-day ceiling, daily pledge value, notice before invocation and the exceptional-circumstances route.
2. Test back-office systems. Check the daily calculation of the maximum pledge value, next-day release of excess pledges, sale under the client’s UCC and credit of surplus proceeds.
3. Revise client communication. Update email and SMS templates on payment obligations and pledge invocation, and brief authorised persons and client-facing staff.
4. Track exchange guidelines. The three-month clock for most provisions starts when exchanges issue their guidelines, so internal timelines should be set from those dates.
5. Build it into audit. Handling of unpaid securities is likely to be tested in inspections, so add these controls to your stock broker and DP internal audit checklist.

Entities applying for a new stock broker registration, or onboarding sub-networks through authorised person registration, should build these requirements into their risk management policies from the start.

Expertvuw’s team can help you assess the impact of this circular on your policies and processes. Audits and certifications are carried out by independent licensed professionals.

Sources

• SEBI – Circular HO/38/11/(9)2026-MIRSD-POD/I/15382/2026 dated 3 July 2026, Handling of Client’s Unpaid Securities by Trading Members
• SEBI – Full text of the circular dated 3 July 2026 (PDF)
• SEBI – Master Circular for Stock Brokers dated 17 June 2025