Zerodha's Nithin Kamath Lauds New SEBI Rule That Simplifies Payout Of Securities

Zerodha Founder and Chief Executive Officer Nithin Kamath has lauded the Securities and Exchange Board of India for introducing a new rule that simplifies the payout of securities.

The rule, that will come into effect from Oct. 14, states that the securities for pay-out shall be credited directly to the client’s demat account by the clearing corporations.

This "significantly simplifies our DP process, which today involves receiving shares for the entire group of clients and then allocating them based on purchases made, i.e., gross settlement", he said.

"And this is much safer, too. A broker from now on will never be able to touch client securities ever, which is possible today when you buy stocks and are not yet credited to your demat," the Zerodha CEO added.

At present, the securities that are bought by clients are first credited to the broker's pool account. They are subsequently transferred to the buyer's demat account by the broker. Till the completion of this transfer, the securities are under the control of the broker.

SEBI, in its circular issued in June, had noted that the direct payout option was available on voluntary basis since February 2001. However, it will be mandatory from Oct. 14, it noted.

The decision has been taken after consultations with stock exchanges, clearing corporations and depositories, the markets regulator had said.

Under the new mechanism, clearing corporations would allow trading members or clearing members to identify the unpaid securities and funded stocks under the margin trading facility.

Unpaid securities should be transferred to respective client’s demat account, followed by creation of an auto-pledge (without any specific instruction from the client) with the reason 'unpaid', in favour of a separate account. This separate account should be titled 'Client unpaid securities pledgee account', which shall be opened by TM/CM, it had said.