SEBI mandates stockbrokers to settle their client’s unused fund balances lying in the trading accounts (transfer available credit balance from Trading account to Bank account) .
Until now settlements were expected to be done as per the process explained in this article (link). However effective 7th of Oct 2022 SEBI has issued guidelines, where in all brokers shall be required to settle balances with a revised mechanism (Link to SEBI circular). Based on the revised framework, settlement of clients funds shall be done based on the below explained method.
Process for settlement of clients fund balances effective 7th Oct 2022:
A) Running account settlement*: On the 1st Friday of each quarter (ie. First Friday of the following months Oct, Jan, Apr, July) we shall check for a list of all such clients that have credit fund ledger balance (ie. Greater than 0 fund balance) and shall return the excess fund in their trading account to their bank account after adjusting for retainable balances as per SEBI guidelines. Such settlement shall be done for all clients irrespective of when the last settlement of funds was done.
B) Settlement's on account of no trading activity: On each Saturday, we shall check for a list of all such clients that have not traded at all in the last 23 days and shall return the excess fund in their trading account to their bank account after adjusting for retainable balances as per SEBI guidelines.
Note: An important point in the above stated process is "after adjusting for retainable balances". Retainable Balances are such permissible limits upto with SEBI permits the brokers to hold the un-utilised funds of clients before returning the funds to clients bank as per settlement guidelines.
For eg. If clients cleared fund ledger balance on Friday end of day is Rs. 1,00,000 and permissible retainable balances are Rs. 80,000 then only Rs. 20,000 shall be settled to the clients bank account. Such retainable balances are computed based on the formulae stated in this article (link to article).
In case of running account settlement as per the above process, clients shall be required to add back funds to their trading accounts by Monday morning, to ensure un-interrupted trading.
* Please note, of clients who've opted for Monthly settlement of running accounts (While account opening) for such clients settlement of funds shall be done on the 1st Friday of each month, instead of 1st Friday of each Quarter (Incase of clients who've opted for quarterly settlement of running accounts)