Sebi bans brokers from creating bank guarantees on clients’ funds

Mumbai: The Securities and Exchange Board of India(Sebi) on Tuesday barred stock brokers from pledging clients’ funds with banks.

At present, stock brokers and clearing members pledge clients funds with banks which in turn issue bank guarantees to clearing corporations for higher amounts.

“This implicit leverage exposes the market and especially the client's funds to risks,” Sebi said in a circular.


The regulator said beginning May 1, no new bank guarantees should be created out of clients’ funds by stock brokers.

All existing bank guarantees created out of clients’ funds should be wound down by September 30, 2023.

However, this new framework would not be applicable for proprietary funds of stock brokers in any segment and stock brokers proprietary funds deposited with clearing member in the capacity of a client.