SEBI’s New Direct Securities Payout Rules from Oct 14: Zerodha’s Nithin Kamath Breaks Down Key Changes for Investors and Brokers

The Securities and Exchange Board of India (SEBI) is introducing new rules to make the Indian stock market more transparent and efficient. Starting from October 14, 2024, these rules will change how securities are credited to investors’ demat accounts. The goal is to reduce the role of brokers and directly credit securities to investors after they complete a trade.

Nithin Kamath, the Founder and CEO of Zerodha, explained that this change will simplify how stock settlements happen. Under the new system, shares will be directly credited to an investor’s demat account through a process called net settlement. This means that brokers will no longer need to handle securities during the settlement process, making it safer for investors.

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Kamath said, “SEBI is making the markets safer and simpler. Starting from October 14th, shares bought will go directly to the customer’s demat account through net settlement. This will make our process simpler, as brokers won’t need to handle shares for clients anymore.”

How the Current System Works

Currently, when you buy shares, they are first credited to the broker’s account before being transferred to your demat account. Brokers manage this process and can access your shares until the transfer is complete.

In some cases, brokers use a method called “direct payout for net settlement,” where shares go directly to buyers. However, problems like “short delivery” (when sellers fail to deliver shares) can cause delays, requiring brokers to resolve issues by purchasing shares from the market.

SEBI’s New Guidelines

SEBI’s new rules will be implemented in two phases:

1. Phase 1 (October 14, 2024 – January 13, 2025): Direct credit of shares will be introduced for equity cash segments and physical settlements. However, in some cases (such as rejected payouts or inactive accounts), shares may still go to the broker’s account temporarily.
2. Phase 2 (From January 14, 2025): Direct credit will apply to all transactions, including Securities Lending and Borrowing (SLB) and Offer for Sale (OFS). Brokers will no longer participate in the auction process for short deliveries, as the clearing corporation will handle everything directly.

Changes in the Pledge Process

Right now, when investors use margin trading or buy without full payment, brokers manage the pledging of shares. SEBI’s new rules will change this process. Brokers won’t handle pledges directly anymore. Instead, clearing corporations will manage the pledge in the client’s demat account, ensuring a more secure process.

What Does This Mean for Investors?

For most investors, nothing will change in how they buy or sell shares. These changes will happen in the background and aim to make the process faster and safer. Direct credit of shares will reduce delays and prevent brokers from handling your shares, offering more security for your investments.