Sebi Introduces Auto-Pledge Framework for Unpaid Client Securities

The Securities and Exchange Board of India has introduced a new auto-pledge framework specifically designed to manage securities purchased by clients that remain unpaid. This initiative targets trades executed outside the existing Margin Trading Facility to ensure clearer settlement processes and enhanced risk management for brokerage accounts.

Under this revised system, securities that are not paid for by the client at the time of purchase will be directly credited to the client's demat account, but will be subject to an auto-pledge mechanism. This structure provides a safeguard for brokers while maintaining the visibility of asset ownership within the client's own investment ledger.

The move aims to streamline how brokers handle short-term credit and unsettled trades, minimizing systemic risk in the equity markets. By automating the pledge process, the regulator seeks to eliminate ambiguities regarding collateral and ownership, ensuring that all market participants adhere to standardized credit protocols when managing client portfolios.