A framework has been planned by SEBI to minimize the risk of misuse of investor funds by stockbrokers. These new measures are a part of the market regulator’s attempt to prevent misappropriation and misuse of client funds by brokers, and also to shield the former in the event of a default by the latter.

This ensues after several cases of brokers misusing their clients’ securities for trades that were not approved by them. The 2019 Karvy Stock Broking case is an example, Karvy Stock Broking was banned by SEBI for defaulting clients for around ₹2,000 crores making it one of the biggest such cases in India. Under the improved framework, the settlement of running account of funds of the client shall be done by the brokerage firm after considering the end of the day obligation of funds as on the date of settlement across all the exchanges, at least once within a gap of 30-90 days between two settlements of running account as per the preference of the investor client. In case of a client holding an outstanding trade position on the day on which settlement of running account of funds is scheduled, a broker may hold funds calculated in a specific manner as specified. Margin liability as on the date of settlement of running account, in all segments and additional margins pay-in obligation; which is up to 125 percent of total margin liability on the day of settlement, therefore, the trading member may retain 225 percent of the total margin.

In May, SEBI had suggested segregating the funds collected by brokers and identifying them in the name of each client. Until then, the clearing corporation (CC) of stock exchanges, which settle the trades, used to identify all the margin collected as that of the trading (brokers) or clearing members even if it belonged to clients.