SEBI mandates securities payout in client’s demat directly, amends FPI rules 

Capital market regulator SEBI has today issued two circulars related to the enhancement of operational efficiency and risk reduction by proposing the payout of securities directly to the client demat account, and the disclosures of material changes and other obligations by foreign portfolio investors (FPIs).

Other than that, the capital markets regulator also proposed to increase the limit of securities' value held in the basic services demat account (BSDA) from ₹2 lakh to ₹10 lakh. It released a consultation paper on the review of the facility for BSDA for financial inclusion.

Direct payout of securities in client demat 

SEBI says after discussions with stock exchanges, clearing corporations (CCs) and depositories, it has decided that securities for pay-out will be credited directly to the respective client’s demat account. CCs will provide a mechanism for trading members (TM) or clearing members (CM) to identify unpaid securities and funded stocks under the margin trading facility. 

SEBI says with regard to funded stocks under the margin trading facility, these will be held only by way of pledge. For this, TM or CMs will open a separate demat account, in which only funded stocks in respect of margin funding will be kept, and no other transactions will be permitted. Such funded stocks will be transferred to the respective client’s demat account followed by the creation of an auto-pledge. The circular will come into force with effect from October 14, 2024.

Disclosures of material changes for FPIs

SEBI notified the SEBI (FPIs) (Amendment) Regulations, 2024, on June 03, 2024, amending the FPIs Regulations, 2019, to relax the timelines for disclosure of material changes and other obligations. The amended rules say if there is any change in the material information previously furnished by the FPI, it will inform the designated depository participants (DDP) in writing. 

‘Type I’ material changes will be informed by FPIs in seven working days of the occurrence and the supporting documents will be provided in 30 days. Type 1 changes include change of jurisdiction; name change on account of acquisition, merger, demerger, restructuring, change of ownership; and acquisition or merger or demerger, among others.

‘Type II’ material changes, i.e., any material changes other than those considered as  ‘Type   I’, will be informed by FPIs in 30 days. 

The DDP will examine all material changes informed and reassess the eligibility including requiring FPIs to seek fresh registration. It will mandatorily require the FPI to seek fresh registration in case of ‘Type I’ material changes. 

Review of facility for BSDA

SEBI says keeping in view the growth of benchmark indices and to further enhance the participation of retail investors in the securities market, including the participation of investors holding securities in physical form, it has proposed to enhance the limit for a demat account to be categorised as BSDA to ₹10 lakh.

At present, an individual can hold debt securities worth up to ₹2 lakh and other than debt securities worth up to ₹2 lakh in a single demat account to be eligible for BSDA. SEBI has asked if the BSDA limit should be enhanced over and above the proposed limit of ₹10 lakh, or if separate limits should be retained for debt securities and other than debt securities.