New Running Account Settlement Rule - Single day for clients of all stockbrokers in India

General
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In India, stockbrokers are required to follow one of two ways to settle balances with their clients. The balances can either be settled bill-to-bill or maintained in form of a running account with the stockbroker.

In a bill-to-bill settlement process, money receivable by a client as per each contract note is transferred to their bank account. On the other hand, maintaining a running account means that instead of funds getting settled into the bank account each time, the credit is made available in the ledger your stockbroker maintains for you. These funds can then be utilised for trades or withdrawn by placing an instruction with your stockbroker.

SEBI requires stockbrokers to settle all running account balances maintained with them at least once a month/quarter based on the agreement with their clients. Even if you have an open position or obligation, any free balance in your trading account will be settled into your bank account to clear balances at the end of the month/quarter.

The period cycle for the running account settlements started with the account opening date of the client. So, all brokers would settle funds to the clients as and when the month/quarter for the client ended. Recently, SEBI issued this circular directing stockbrokers to change this period cycle and make payments to all clients on the same day. Here is an extract from the circular:

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So, if your stockbroker processes the running account settlement for you once a quarter, from October 2022 onwards, the settlement for all clients of the stockbroker will have to be done on the same day. This will be the first Friday of October, January, April & July.

On October 7th, 2022 all stockbrokers in India will have to settle the running accounts of their clients. This settlement activity will test the systems of both stockbrokers and their banking partners.

To reduce the load on the systems on Friday, October 7th, we have already started settling funds for our clients who have been inactive for the last few days. We expect the clients will not need to add back funds to their trading account since they are not using it. In case the funds are added back on or before October 7th, we will again have to send the funds back on October 7th to clear the running account in compliance with the new regulation.

Further reading: NSE FAQs on running account settlement.

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Do we have an option to choose quarterly settlements instead of monthly?

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If you haven’t traded once in 30 days, money has to be sent back mandatorily. If you are actively trading, then on the first Friday of the quarter, unused funds on that day have to be sent back. So if you are an active trader, it is once a quarter. Unlike earlier, brokers have to settle all customers on one day vs spreading out over a quarter, hence the working capital requirement goes up exponentially.

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Any idea why this stance from SEBI? Having this done for inactive users makes a lot of sense, but at the same time this will be a big hassle for active traders.

Maintaining requisite margins on open positions will become a nightmare. Might cause cash component shortfall in many cases as well, making traders liable to being penalised by brokers at their will.

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Can’t brokers provide a ON/OFF switch so that customers can opt if they don’t want auto settlement.

Won’t SEBI agree ?

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If account gets settled on Friday, then can funds be added back on Monday morning or on weekends? asking as i saw few other broker not allowing deposits on monday if settlement processed.

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Is the Total 225% retaining rule still applicable?

Earlier free cash was utilized first so does the same hold or 225% is adjusted first with pledged margin.

I hope we don’t go to unpledge free(unutilised) margin headache in the future.

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This is how the retainable margin is calculated (extract from NSE’s FAQs):
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Example:
Cash - 1 lac
Collateral pledged - 10 lacs
Margin required - 1.5 lacs

First, 50% of the margin required is retained in form of cash i.e. 75k. For the remaining 75k, the collateral pledged balance is checked. In the above example, since collateral is 10 lacs, the remaining 75k can be utilised from it.

The stockbroker can retain up to 225% of 1.5 lacs i.e. 3.375 lacs.
75k is already collected in cash form, so a further 262.5 can be retained. This is available from the collateral.

All margin requirements are covered now (1) 50% of margin used in cash (2) up to 225% margin block

Out of the 1 lac cash balance, 25k is unused free balance. So, it has to be settled.
The additional collateral pledge does not have to be unpledged.

Assume, in the example, the collateral is reduced.
Cash - 1 lac
Collateral pledged - 1 lac
Margin required - 1.5 lacs

Here, since 225% of 1.5 lacs is 3.375 lacs and only 2 lacs is available, the entire cash can be retained by the stockbroker.

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Stockbrokers can provide bill-to-bill settlement, monthly settlement or quarterly settlement. SEBI has not made allowance for any other option.

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one small clarity required here, if the collateral in first case of 10L is totally Liquid funds, then is there a change in the 50% cash form ?

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If the collateral is all liquid funds, the entire 1 lac cash will be paid out.

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this is what i expected and didnt want :smiley:

Earlier this wasn’t the case or atleast i think. I have always been “deemed settled” :stuck_out_tongue: without any trx

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for above , what if we have only cash of 2L no collateral , than full cash amount can be blocked by broker ( required margin + max retain ) , required margin is 1.5L and we have 2L , does we got margin shortfall in any case because one is not have 225% ?

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225% is only for settlement, and has nothing to do with margin shortfall.
so in your case they can retain the full amount and no payout needs to be done.

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This is going to create so much problems. Banks have transaction limit of 10 lakh per day… so we can’t transfer our funds fully if our trading capital is more than this. Can’t imagine how ppl with 50lakh+ are going to manage this every quater. Any ideas

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keep funds in mutual fund or equity and pledge them

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@nithin Time to promote HDFCBANK eCMS :smiley:
Unlike payment gateway settlement systems, there’s instant update if i’m not wrong.

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Buy Liquidbees or other such liquid ETFs and sell them all or in tranches depending upon the invested amount and charges for selling.

I did this today, not because I have big amount but because I have amount limit per month in my account, so if funds are moved from Zerodha or other broker to my account, that amount will be taken as credit, so I will not be able to add lesser funds for the months.

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Yeah i thought of the same but only 80% of proceeds i will be able to use on that day if i am not wrong. But yeah this is the best solution for now…