SEBI Revises Unpaid Shares Framework, Strengthens Investor Protection Norms
SEBI updates rules to keep unpaid shares in investors’ demat accounts.
The Securities and Exchange Board of India (SEBI) has introduced a revised framework governing unpaid shares, requiring securities purchased by investors but not fully paid for to remain in their demat accounts while giving brokers a pledge over them until dues are cleared. The move is aimed at strengthening investor protection and updating regulations to match the current market structure, where securities are directly credited to investors’ demat accounts.
Under the new system, unpaid shares will first be credited to the investor’s demat account and then automatically pledged in favour of the broker through a dedicated mechanism known as the Client Unpaid Securities Pledgee Account (CUSPA). Brokers will be required to inform clients via email or SMS about pending payment obligations and warn them about the possibility of liquidation if dues are not settled within the prescribed timeframe.
SEBI has also mandated strict timelines for payment recovery. Investors must clear outstanding dues within a maximum of five trading days from the payout date. If payment is not made within this period, brokers will be allowed to invoke the pledge and sell the securities in the market using the client’s unique trading code. Any surplus amount remaining after recovering dues must be returned to the investor, ensuring financial transparency.
Also Read: SpaceX IPO Attracts $250 Billion Investor Demand, Reuters Reports
A key safeguard introduced under the framework is an automatic release mechanism. If a broker neither invokes nor releases the pledge within five trading days after payout, depositories will automatically remove the pledge on the sixth trading day. This ensures that investors regain full control of their securities if no action is taken within the stipulated period, thereby preventing unnecessary restrictions on holdings.
SEBI has further restricted brokers from using securities pledged under the unpaid shares mechanism as collateral to raise funds from banks or non-banking financial companies. However, in exceptional circumstances such as trading halts, lower circuit locks, or illiquid market conditions, brokers may seek extensions to retain the pledge until liquidation becomes possible. The updated rules aim to balance investor ownership rights with the need for brokers to recover outstanding trading obligations efficiently.
Also Read: David Solomon Says Investor Greed Is Outpacing Fear In Market Rally
