As per SEBI's circular, brokers must transfer funds from your trading account back to client bank account once a quarter. Transferring your unused funds back to client’s primary bank account is called the quarterly settlement of funds or the running account settlement.
1. When does a client account need to be settled?
Settlement of running account funds must occur quarterly or monthly, based on the client’s preference, considering the End of the Day (EOD) fund obligations across all Exchanges, on dates set by the Stock Exchanges (SEBI circular, Dec 2023). For clients with a credit balance who haven’t traded in 30 calendar days, the Trading Member must return the entire balance on the next monthly settlement date, regardless of the client’s chosen cycle. If the client trades within those 30 days but before the settlement date, the settlement follows the client’s quarterly or monthly preference (SEBI circular, Jan 2025).
2. If the client has not done any Exchange transaction in the last 30 calendar days but has an open position in derivatives segment, still the credit balance should be returned to client?
If a client has not done any exchange transaction in the last 30 calendar days but has an open position in the derivatives segment, the credit balance should be returned to the client based on the later of the contract expiry date or the position closure date, which is treated as the last transaction date for computing the 30-day period. The settlement of the running account must occur on the exchange-stipulated running account settlement dates, either monthly or quarterly, as per the client’s preference.
Summary of Illustration:
Quarterly Settlement:
Last trade: 10-Jan-2025, Position closure: 15-Jan-2025, Next settlement: 7th/8th March 2025
Last trade: 10-Jan-2025, Contract expiry: 24-Jan-2025, Next settlement: 7th/8th March 2025
Monthly Settlement:
Last trade: 10-Jan-2025, Position closure: 15-Jan-2025, Next settlement: 7th/8th February 2025
Last trade: 10-Jan-2025, Contract expiry: 24-Jan-2025, Next settlement: 7th/8th February 202
3. What is the value of funds that a trading member can retain while doing the settlement?
A Trading Member can retain client funds during running account settlement as follows: the entire pay-in obligation for trades on the settlement date (T and T-1 day) across all segments, 50% of the End of Day (EOD) margin requirement as cash margin (excluding consolidated crystallized obligation/MTM), and an additional 225% of EOD margin (including 125% extra) minus the cash margin and the value of pledged securities/commodities (after haircut). The margin liability covers EOD margin across all segments/exchanges, excluding crystallized obligation/MTM, and may include margins per the Trading Member’s risk management policy. Funds exceeding these amounts must be returned to the client, with securities valued at the T-1 day closing rate (post-haircut, not less than VaR margin rate from June 30, 2025).
4. Whether the securities pledged to Trading Member need to be unpledged while doing the settlement?
Excess securities (in the form of margin pledge/re-pledge) with Trading Member (TM), Clearing Member (CM) or with Clearing Corporation (CC), after adjustment of the 225% of the margin liability need not be unpledged for the purpose of periodic settlement.
5. Can Members issue payments through physical mode, while settling the accounts of the clients?
For the purpose of settlement of funds, the mode of transfer of funds shall be by way of electronic funds transfer viz., through National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), etc.
Trading Members may issue a physical payment instrument (cheque or demand draft), only in cases where electronic payment instructions have failed or have been rejected by the bank and after keeping adequate record of the same.
Further, in case of failure of electronic payment instructions due to incorrect bank account details, Trading Members shall obtain correct bank details from clients and update their records after keeping adequate audit trail.
6. Is there any threshold amount below which members may not be required to settle client’s account?
No. Retention of any amount towards administrative / operational difficulties in settling the accounts of clients is not permitted.
7. When is a Trading Member required to send statement of accounts for funds / securities?
Trading Members must send a complete ‘Statement of Accounts’ for funds, securities, and commodities to each client weekly, within four trading days of the subsequent week. Additionally, they must provide a statement with extracts from the client ledger for funds, register of securities/commodities, and an explanation of retained funds/commodities within five working days from the settlement date. Statements must also be issued for any period requested by the client. These can be sent in hard or soft copy based on client consent, with records of dispatch or email logs maintained. Refer to NSE circular NSE/INSP/47227 dated February 03, 2021, for the statement format.
8. Is statement of account required to be issued in case no trades are done by the clients?
The members shall not be required to send the ‘Statement of Accounts’ to clients with zero funds, zero securities and zero commodities balances and no trades are carried out by the client in the last 12 months across all Exchanges.
9. In which circumstances the settlement need not be done by a Trading Member?
A Trading Member is not required to perform periodic settlement in the following cases:
• Trades settled through custodians: When clients settle trades via custodians.
• Margin via Bank Guarantees: When clients provide margins as Bank Guarantees per SEBI guidelines on upstreaming client funds.
• Clearing Members: For Clearing Members handling trades of custodial participants or Trading Members.
• Uncleared cheques: When cheques from clients are credited to their ledger but remain uncleared on the settlement date.
• New clients: No settlement is required on the first settlement date after client registration (e.g., a client registered on October 1, 2024, opting for quarterly settlement, skips settlement on October 4-5, 2024, and settles on January 3-4, 2025). However, if a new client with a credit balance has no transactions within 30 days of the last transaction, the Trading Member must return the credit balance.
10. Can a Trading Member retain funds of clients towards obligations towards its sister companies?
No. During client account settlements, retention calculations cannot include any client debit balances recorded in the books of the Trading Member's sister concerns or associates (even if registered on the same/other exchanges or in commodities broking).