Context: From October 1, 2022, the new account settlement system for the stock broking industry will kick in under the new guidelines issued by the Securities and Exchange Board of India (SEBI).

About Settlement of Accounts

• The SEBI mandates stockbrokers to settle i.e., transfer the available credit balance from trading account to bank account, at least once in a quarter (90 days) or 30 days.

• The process of transferring the unutilised funds back into the bank account is called ‘Running Account Settlement’ or ‘Quarterly Settlement of Funds’.

• The funds are transferred back to the primary bank account of the customer that is linked to the trading account.

SEBI’s new settlement guidelines

• SEBI has issued new guidelines on running accounts of client funds and securities lying with the broker.

• As per the guidelines, the settlement of running accounts of clients funds will be done by the trading members after considering the end of the day (EOD) obligation of funds.

• In cases where the client has opted for a monthly settlement process, then the running account shall be settled on the first Friday of every month.

How will these guidelines impact investors and traders?

• Changes in settlement brought in by SEBI over the last few years have had the aim of protecting the investor and preventing the misuse of money lying in trading accounts of investors for long periods. Hence, SEBI’s move will give certainty to investors and trading members.

• It will also help brokers develop a system just like banks that credit interest in the accounts of their customers at the end of the quarter.