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Clearing pool funds come under the microscope

NetScribes/Janaki Krishnan

After kicking up dust a few months ago over the accumulation of securities in brokers' clearing pool accounts, the Securities and Exchange Board of India (SEBI) has now trained its sights on the funds lying in those pool accounts.

In June this year, SEBI had expressed concern over the securities that were piling up in the brokers' pool accounts before being transferred to the client accounts.

C B Bhave, managing director of National Securities Depository (NSDL), said that since SEBI has raised the issue of accumulation of securities in brokers' accounts and the possibility of their misuse, it should also look into what is happening with the funds at the brokers' end.

J R Varma, a member on the SEBI board, said that the capital market regulator is looking at establishing superior systems whereby the pay-in of securities or cash does not have to take place through the brokers, but is directly credited to the investor.

"There has to be a systemic solution to avoid this circuitous route," said Varma, pointing out that this entire problem would be resolved once the electronic funds transfer system came into place.

SEBI was weighing different settlement systems that could skip the broker interface at least during the time of pay-out and pay-in. "Once all the settlement systems get automated, the need for the securities and funds to be put in the brokers' accounts will be eliminated," said Varma.

Though there is a 15-day time frame within which the shares have to be transferred to the clients' beneficiary accounts, this is usually not adhered to due to various reasons -the client may not have a beneficiary account, the broker may not have proper instructions from the client, or there may be outstandings the client owes the broker.

According to Varma, who is heading a committee which is looking into this issue of clearing accounts, though there is no specific instance of misuse of securities or funds by brokers there is a concern that this could happen. SEBI wants a system which would pre-empt any such misuse. At present, SEBI or the stock exchanges (who are the first-level regulators) would come to know of any misuse only after the event takes place.

Misuse of clients' securities and funds - which could take the form of brokers using the securities and funds lying in their accounts for their own trading - is a violation of stock exchange rules and regulations.

SEBI has been extremely guarded about the exact worth of the clearing pool accounts, beyond saying that at any point of time "several lakhs worth of each scrip" could be lying in the accounts. No such indication is forthcoming on the amount of funds in these accounts.

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