The Securities and Exchange Board of India (SEBI), vide Circular No. HO/38/11/(9)2026-MIRSD-POD/I/15382/2026 dated July 03, 2026, has amended Paragraph 46 of the Master Circular for Stock Brokers dated June 17, 2025, revising the regulatory framework governing the handling of clients' unpaid securities by Trading Members (TM) and Clearing Members (CM).
Background
The provisions relating to handling of client securities by Trading Members were originally introduced vide SEBI Circular Nos. CIR/HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019 and SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2022/153 dated November 11, 2022. Since their introduction, several regulatory developments have taken place, including the introduction of mandatory pay-out of securities directly to clients' demat accounts, along with changes in prevailing market practices. Representations were received from the Brokers' Industry Standards Forum (ISF) seeking revisions to align the existing provisions with the current regulatory and market environment and to address operational challenges faced during implementation. Accordingly, SEBI has revised Paragraph 46 of the Master Circular.
Creation of Pledge for Unpaid Securities
For trades not covered under the Margin Trading Facility (MTF), the pay-out of unpaid securities shall be made directly to the client's demat account, followed by the creation of an auto-pledge, without any specific instruction from the client, bearing the reason "unpaid," in favour of a separate account titled "Client Unpaid Securities Pledgee Account" (CUSPA), to be opened by the TM. Upon creation of such pledge, the TM is required to send a communication, by email or SMS, informing the client of the funds obligation and of the TM's right to sell the securities in the event of failure to meet such obligation.
Policy Requirement
TMs are required to formulate and maintain a policy, either on a standalone basis or as part of their Risk Management Policy, addressing the handling of unpaid securities in terms of this circular and any operational guidelines issued by exchanges. This policy must be communicated to all clients prior to implementation and must clearly set out the processes, reasons, manner, and timing pertaining to invocation, release of pledge, and liquidation of unpaid securities. The maximum period within which a client must meet the payment obligation shall not exceed five trading days from the pay-out date. While unpaid securities pledged to CUSPA may be considered for reporting of client margin collection to the Clearing Corporation, TMs are prohibited from allowing any exposure to clients on the basis of such pledged securities.
Release of Pledge
During the period in which the client's funds obligation remains outstanding, the TM is required to determine, on a daily basis, the maximum value of securities that may remain pledged, in accordance with operational guidelines issued by the exchanges, based on factors such as the client's ledger balance and overall margin obligations. Where the value of pledged securities exceeds this maximum threshold, the TM must release the pledge on the excess quantity on or before the next trading day.
Invocation of Pledge
If a client fails to meet the payment obligation within the prescribed timeline, the TM shall invoke the pledge and liquidate the unpaid securities in accordance with its policy, after providing reasonable notice to the client. Upon invocation, the securities shall be blocked for early pay-in in the client's demat account, with a corresponding trail maintained in the TM's CUSPA account, and the depositories shall verify the block details against the client-level obligation. The unpaid securities shall be sold in the market using the Unique Client Code (UCC) of the respective client, with any surplus funds remaining after settlement of the client's obligation to be credited to the client's ledger.
Auto-Release of Pledge
Where the pledge on unpaid securities is neither invoked nor released within five trading days after pay-out, it shall be automatically released by the depositories at the end of the sixth trading day, and the securities shall become available to the client as free balance without encumbrance. The TM retains the option to request release of the pledge at any time before such auto-release.
Prohibition on Further Pledging or Transfer
Securities pledged in favour of the CUSPA of a TM shall not be permitted to be further pledged or transferred to banks or NBFCs for the purpose of raising funds.
Extension of Pledge in Exceptional Circumstances
Where the unpaid pledged securities cannot be liquidated within five trading days after pay-out due to the security being in a lower circuit with only sellers, suspension or trading halt due to surveillance or other reasons, or any other valid reason recognised by Market Infrastructure Institutions (MIIs) including unforeseen circumstances beyond the TM's control, the TM may request an extension of the pledge by up to one additional calendar week. Such request must be made by 6:00 PM on the fifth trading day after pay-out. Further extensions of a similar period may be sought if the qualifying conditions continue, but no further extension shall be permitted once such circumstances cease to exist. Each extension of pledge requires a corresponding communication to the client. Failure by the TM to request an extension within the stipulated timeframe shall result in automatic system-based release of the pledged securities.
Implementation Timeline
Stock exchanges are required to issue operational guidelines for implementation of these provisions, in consultation with depositories, within 30 days from the date of issuance of this circular. The amended provisions of Paragraph 46.1 to 46.11 shall come into force three months from the date of issuance of such operational guidelines by the stock exchanges. The amended provisions of Paragraph 46.12 to 46.14 shall come into force six months from the date of issuance of this circular.
Directions to Stock Exchanges and Depositories
Stock exchanges and depositories have been directed to bring the provisions of this circular to the notice of their members and participants and disseminate the same on their websites, make necessary amendments to relevant bye-laws, rules, and regulations for implementation, and put in place appropriate systems and arrangements for effecting the provisions of the circular.
Regulatory Basis
This circular has been issued in exercise of powers conferred under Section 11(1) of Chapter IV of the Securities and Exchange Board of India Act, 1992, read with Regulation 50 of the SEBI (Stock Brokers) Regulations, 2026, Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, and Regulation 97 of the SEBI (Depositories and Participants) Regulations, 2018.
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