SEBI Orders Faster Liquidation of Defaulting Brokers’ Assets

Stock exchanges and clearing corporations should sell brokers’ securities if debit balances are not cleared in 5 days, and to sell other broker assets six months after the default.

SEBI (Securities and Exchange Board of India) has instructed stock exchanges and clearing corporations to immediately start selling securities belonging to brokers if their debit balances have not been cleared in five days.

In a circular, SEBI notes that in the cases involving defaults by trading or clearing members, there is often a shortfall of funds and securities required to meet the obligations of their clients, the stock exchange or clearing corporations.

As such when trading and clearing members are unable to fulfil their obligations, stock exchanges and clearing corporations should declare them as defaulters and take action to recover assets.

Stock exchanges and clearing corporations are advised to start liquidating the assets (both movable and immovable) of the defaulting member within six months, and to initiate court proceedings to recover assets not in their possession.

According to SEBI, stock exchanges act as a first-level regulator in the securities market and are empowered to frame rules for the regulation and control of contracts in securities market entered into by members.