Capital markets regulator SEBI on Thursday said the block mechanism facility relating to demat accounts will not be applicable for customers who have arrangements with custodians for clearing and settlement of trades.
In order to protect the demat accounts of investors, the Securities and Exchange Board of India (SEBI) had in August said that the facility of block mechanism would be mandatory for all initial payment transactions from November 14.
At present, this facility is optional for the investors.
An early payment mechanism is used by merchants to reduce their margin obligations.
Under the block mechanism, the shares of the customer desirous of undertaking the sale transaction will be blocked in the customer’s demat account in favor of the respective clearing corporation.
In a circular, the regulator said, “In view of representations received from depositories and custodians, it is clarified that the block mechanism shall not be applicable to customers who have arrangements for clearing and settlement of trades with SEBI registered custodians.” “
SEBI asked the Depository and Clearing Corporation to put in place a suitable mechanism to ensure compliance with the new rules.
In July, the regulator decided to introduce the concept of a block mechanism, whereby investors have the option to block securities in their respective demat accounts for sale transactions from August 1.
An early payment method option is also available.
Under this option, the shares are transferred from the customer’s demat account to the respective clearing corporation’s account. If the sale transaction is not executed under the initial payment mechanism, those shares are returned to the customer’s account and the process is time-consuming and involves costs.
If the sale transaction is not executed, the shares will remain in the demat account of the customer and will be unblocked at the end of the t(trade) day. Blocking of shares will be on ‘time basis’.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)