InvestorQ : What happens to brokers and clients since SEBI has barred the transfer of shares from client account to Broker account? How do we trade?
NISHA Nayak made post

What happens to brokers and clients since SEBI has barred the transfer of shares from client account to Broker account? How do we trade?

Answer
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Mitali Bhutta answered.
7 months ago


First and foremost, this move is not effectively immediately but only from June 01, 2020. SO there is still four months for it to be effective. This was long coming. Effective June2020, SEBI has banned the transfer of shares from the client account to the broker account.

This had become a major issue after Karvy Stock Broking was found guilty of having raised money from banks by pledging shares of clients without their knowledge. Back in November SEBI had banned KSBL from taking on fresh clients and had subsequently deactivated its trading terminals.

In the new system, brokers will only be permitted to accept stock collateral as margin pledges created on the client demat account. The current system of transferring shares to the broker will be banned altogether.

Power of attorney given by a client to the TCM (Trading-cum-Clearing Member) will not be treated as equivalent to giving shares for margin account. This will ensure that incidents like Karvy do not recur in the market. As a trader, you just give a margin pledge instead of transferring shares to the broker, which is a lot safer for trading clients.