Important:
This article, has been modified due to a newly introduced regulation. Please view the amended article here

Settlement of funds and securities through Quarterly Settlement is an initiative by SEBI to ensure brokers do not misuse client funds and/or securities.

In order to safeguard the interest of the investor/trader, SEBI mandated all stockbrokers to reverse any funds that are lying in the trading account back to the bank account of the client. This Quarterly settlement has to be done for both funds and securities of the clients. SEBI mandates that the settlement has to be done once every month or quarter.

However, SEBI's rule is that any account where the balance is less than Rs 10,000 need not be settled meaning the funds needn't be transferred back to the client's account. Also, it allows the broker to block an additional 125% margins for any open position held by the client and then reverse any excess funds lying in the account. 

However, if you haven't made any trades in the month/quarter considered for settlement, in this case, the money in your trading account will be sent to your bank account. Additionally, if you've only done Intraday trades, funds may be sent back to your bank account.  Effective 01st September, the quarterly settlement of pledged holdings is no longer required since the stocks are pledged via the margin pledge system.


Such settlement may happen as per schedules set by PM Securities, and shall be communicated to you from time to time. Here's an example of how much of your funds shall be returned to your bank account:


Example


If on the day of quarterly settlement date (Let's assume its a Friday) your trading account has the following:

  • Rs. 1,00,000 as cleared fund balance  (Funds received by sale of securities shall be considered as cleared balance on t+2 day). 
  • Rs. 25,000 as used margins on open positions. (Blocked margins on open positions)
  • Rs. 10,000 as debit amount for purchase transactions done on Thursday / Friday (T & T-1 day fund obligations)
  • Rs. 15,000 worth of sell transactions done on  Thursday / Friday (T & T-1 day securities pay-in obligation)


Then the calculation for returning the funds to your bank account from your trading account shall be as follows:


Rs. 1,00,000 (Cleared Fund Balance) 

(minus) Rs. 25,000 (Blocked margins on open positions)

(minus) Rs. 31,250 (Additional 125% of Rs. 25,000 as buffer)

(minus) Rs. 10,000 (T & T-1 day fund obligations)

(minus) Rs. 15,000 (T & T-1 day securities pay-in obligation)


ie. 100,000 - 25000 - 31250  - 10000 - 15000

= Rs. 18,750 shall be retuned to your bank account. 


FAQ's by NSE on the same subject can be found here




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