The Securities and Exchange Board of India has revamped rules governing shares bought by investors but not fully paid for, requiring such securities to remain in clients' demat accounts while giving brokers a pledge over them until outstanding dues are cleared. According to reports from Essential Business Intelligence, The Economic Times, Business Standard, CNBC TV18, Livemint, and The Financial Express, the move is aimed at improving investor protection and aligning regulations with the current market structure, where securities are directly credited to investors' demat accounts. The changes come after representations from the Brokers' Industry Standards Forum, which sought revisions to reflect current regulatory and market conditions, with SEBI stating the decision was taken to improve ease of doing business for brokers and ease of investing for clients. The framework was officially revised on July 3, 2025, addressing regulatory developments and operational challenges faced by brokers.
Under the revised framework, unpaid shares will first be credited to the investor's demat account and then automatically pledged in favour of the broker through a dedicated Client Unpaid Securities Pledgee Account (CUSPA). As reported by The Financial Express, the pledge will be made with the reason 'unpaid' in favour of a separate account called Client Unpaid Securities Pledge Account (CUSPA), opened by the broker. For trades not covered under the margin trading facility, unpaid securities will be directly credited to the client's demat account before the auto-pledge is created. The pledge will carry the reason 'unpaid' and will not need any specific instruction from the client. Brokers will also be required to notify clients through email or SMS about pending payment obligations and the possibility of the securities being sold if dues are not settled.
The policy must specify the timeline within which clients need to make payments, with the maximum period capped at five trading days from the payout date. According to the new regulations, if a client fails to meet the payment obligation within the prescribed period, brokers may invoke the pledge and sell the securities in the market using the client's unique code. A key operational enhancement is the introduction of daily pledge reviews - brokers must determine, on a daily basis, the maximum pledge value based on the investor's ledger balance, overall margin obligations or any other relevant factor specified by the exchanges. If the value of pledged securities exceeds the maximum pledge value, the broker will release the quantity of securities corresponding to the excess value on or before the next trading day based on the operational guidelines of the exchange. The circular also clarifies that while such unpaid securities pledged to the broker's CUSPA may be considered for reporting client margin collection to the clearing corporation, brokers cannot give fresh exposure to the client on the basis of these securities.
SEBI has introduced an automatic release mechanism - if a pledge is neither invoked nor released within five trading days after payout, depositories will automatically release the pledge at the end of the sixth trading day, making the securities available to the client as free balance. As reported by CNBC TV18, Livemint, and The Financial Express, trading members may also seek release of the pledge before the automatic release takes effect. The regulator has barred brokers from using securities pledged under the unpaid shares mechanism to raise funding from banks or non-banking finance companies. SEBI clarified that securities pledged in favour of a trading member's CUSPA cannot be further pledged or transferred to banks or non-banking financial companies to raise funds. In exceptional situations such as stocks being locked in lower circuits with no buyers, trading suspensions, or other circumstances that prevent liquidation, brokers may seek extensions to continue the pledge until the securities can be sold.
Stock exchanges have been asked to issue operational guidelines within 30 days, with most amended provisions taking effect three months from the date of those guidelines. However, provisions on extension of pledge in exceptional cases will come into force six months from the circular date. The changes are designed to align market practices with the direct payout system and reduce operational difficulties for brokers while maintaining strong investor protection measures. The framework represents a significant shift toward automated processes and enhanced transparency in handling unpaid securities, balancing investors' ownership rights with brokers' ability to recover unpaid trading obligations. Under the revised framework, securities that have not been fully paid for by clients in trades outside the margin trading facility will continue to be credited directly to the client's demat account, with automatic pledging mechanisms ensuring seamless handling of unpaid securities.
