From today (October 7) a new rule of SEBI regarding share trading has come into force. On every first Friday of the month, all brokerages are now required to transfer unused funds back to the customer’s bank account as part of the new account settlement (AS) process. However, the new rules give customers the option to visit on a monthly or quarterly basis.
The new rules mean that unused funds lying with brokers need to be transferred back to the client’s account after end of day (EOD) obligations. Funds initiated to be transferred on Friday can be used on the following Monday, as the account is not settled immediately. It takes at least a day.
Nitin Kamath, co-founder of online brokerage firm Zerodha, in a series of tweets said, “From this 7th October, every first Friday of the month, all brokerages will be required to transfer the unused funds to the customer as part of the New Account Settlement (AS). to be transferred back to the bank account of ) process. I think it will be over Rs 25,000 crore across the industry.”
“So if your Zerodha account balance gets depleted or you receive money in your bank this Saturday, you know why. By now, AS was spread over a quarter. The idea of doing this in one day, I think, is another way to check whether brokers are misusing client capital in any way,” he said in another tweet.
Kamath also said that the AS regulation is unique to India in a way. In most countries, brokers, like banks, can keep the unused funds forever and use them for working capital requirements as well. In India, after all regulatory changes, client funds can only be used for trades of that client.
“While the new AS process is good for the safety of clients, the broking industry will have some issues to manage. 1. Operational risk of shipping large quantities in a single day. 2. Very high working capital requirement, especially on Monday after AS. 3. Strike the float income,” he said in a tweet.
On settlement, he said payment gateways settle funds with brokers on T+1. So if a broker allows you to trade instantly with money transferred using PG, the broker’s own capital is blocked. On the Monday after AS, more funds can be transferred to the business using PG.
“If the broker permits to buy the stock immediately with the proceeds from the stock sold, the broker’s own funds will be blocked until the exchange settles for T+2 days. Although it is not directly AS Not related to, it will all add up,” Kamath said.
zero brokerage
Brokers in the US may offer zero brokerage because they can use client funds for working capital, earn through payment for order flow, and lend client securities. All this is not allowed in India, and rightly so.
“If I bet, I would say that due to all regulatory changes, there will be upward pressure on brokerage rates over the next few years. While these changes are good for the safety of the clients, they will increase the working capital requirements for the broking industry. Will increase.
read all latest business news And today’s fresh news Here