SEBI Changes Rules for Unpaid Shares: New 5-Day Deadline and Auto-Pledge Rules for Stock Brokers
The Securities and Exchange Board of India (SEBI) has revised the rules for handling securities purchased by clients but not fully paid for. The new framework explains how stock brokers must handle such unpaid securities, when securities can be pledged, when a broker can sell them, and when the pledge must be automatically released.
What are unpaid securities?
Unpaid securities are securities purchased for a client where the client has not paid the full amount required for the purchase.
For example, if a client purchases shares but fails to provide the complete funds required to settle the transaction, the securities related to the transaction may be treated as unpaid securities.
The revised provisions apply to trades not covered under the Margin Trading Facility (MTF).
Unpaid securities will be directly credited to client’s demat account
Under the revised rules, the pay-out of unpaid securities will be made directly to the client’s demat account.
After the securities are credited, an automatic pledge or auto-pledge will be created. The client will not be required to give any specific instruction for creating this pledge.
The reason for the pledge will be marked as “unpaid”.
The pledge will be created in favour of a separate account called the Client Unpaid Securities Pledgee Account (CUSPA). This account will be opened by the Trading Member or stock broker.
Broker must inform the client through email or SMS
After the pledge is created, the stock broker must send a communication to the client. The communication can be sent through email or SMS.
The broker must inform the client about the pending funds obligation. The client must also be informed that the broker has the right to sell the unpaid securities if the client fails to make the required payment.
Stock brokers must create a policy for unpaid securities
Every Trading Member must prepare and maintain a clear policy for handling unpaid securities. The policy can be prepared as a separate policy or it can form part of the broker’s Risk Management Policy.
The policy must comply with the SEBI circular and any circulars or operational guidelines issued by stock exchanges. The broker must communicate this policy to all clients before implementing it.
Policy must clearly explain pledge and sale process
SEBI has said that the broker’s policy must clearly explain the processes related to unpaid securities. The policy must specify the reasons, manner and timing for the invocation of a pledge, release of a pledge and liquidation or sale of unpaid securities.
It must also clearly mention the maximum time available to the client for meeting the payment obligation. This period cannot exceed five trading days from the pay-out date.
No additional exposure can be given against unpaid securities
Unpaid securities pledged to the Trading Member’s CUSPA may be considered while reporting the collection of client margin to the Clearing Corporation. However, the stock broker cannot give additional exposure to the client on the basis of these unpaid securities.
This means the broker cannot use such unpaid securities as the basis for allowing the client to take further trading exposure.
Brokers must calculate maximum pledge value every day
As long as the client’s payment obligation for unpaid securities remains pending, the Trading Member must conduct a daily calculation. The broker must determine the maximum value of securities that can continue to remain pledged.
This calculation must be carried out according to operational guidelines issued by stock exchanges from time to time. The maximum pledge value may be based on the client’s ledger balance, overall margin obligations or any other relevant factor specified in the operational guidelines of stock exchanges.
Excess pledged securities must be released
If the value of securities under pledge is more than the maximum permitted pledge value, the broker must release the pledge on the appropriate quantity of securities. The quantity released should correspond to the excess value of the pledged securities. The release must be completed on or before the next trading day, in accordance with the operational guidelines issued by stock exchanges.
What happens if the client does not make payment?
If the client fails to meet the payment obligation within the prescribed period, the Trading Member can invoke the pledge and sell the unpaid securities. The action must be taken according to the broker’s policy for handling unpaid securities.
However, before invoking the pledge and liquidating the securities, the broker must give reasonable notice to the client.
How will unpaid securities be sold?
When the pledge is invoked, the securities will be blocked for early pay-in in the client’s demat account. At the same time, a trail of the transaction will be maintained in the Trading Member’s CUSPA.
After the securities are blocked for early pay-in, depositories will verify the block details against the client-level obligation. The unpaid securities will then be sold in the market using the Unique Client Code (UCC) of the respective client.
Surplus money must be credited to client’s ledger
The money received from the sale of unpaid securities will first be used to settle the client’s outstanding obligation. If any surplus amount remains after settling the obligation, the broker must credit the remaining funds to the client’s ledger.
Therefore, the broker cannot retain excess funds remaining after the client’s payment obligation has been settled.
Pledge will be automatically released after sixth trading day
SEBI has also introduced a clear auto-release mechanism. If the pledge on unpaid securities is neither invoked nor released within five trading days after pay-out, the depository will automatically release the pledge at the end of the sixth trading day after pay-out.
After the automatic release, the securities will become available to the client as free balance without any encumbrance. SEBI has clarified that a Trading Member can request the release of the pledge at any time before the depository carries out the automatic release.
CUSPA pledged securities cannot be used to raise funds from Banks or NBFCs
SEBI has specifically prohibited the further pledging or transfer of securities pledged in favour of a Trading Member’s CUSPA. Such securities cannot be pledged or transferred to banks or Non-Banking Financial Companies (NBFCs) for raising funds.
This restriction prevents stock brokers from using clients’ unpaid securities to obtain financing from banks or NBFCs.
Pledge period can be extended in exceptional circumstances
SEBI has recognised that in some situations a stock broker may not be able to sell unpaid pledged securities within five trading days after pay-out. An extension can be requested in exceptional circumstances.
One such situation is where the security is in a lower circuit and there are only sellers. An extension can also be requested where trading in the security has been suspended or halted due to surveillance or other reasons.
The extension provision also covers other valid reasons recognised by Market Infrastructure Institutions (MIIs), including unforeseen circumstances beyond the control of the Trading Member.
Broker must request extension by 6 PM on fifth trading day
If the broker is unable to liquidate the securities because of the specified exceptional circumstances, the Trading Member can request an extension of the pledge.
The request must be submitted by 6 PM on the fifth trading day after pay-out. The pledge can be extended for up to one additional calendar week.
Further extensions may also be allowed
If the exceptional conditions continue during the extended period, the broker may seek further extensions. Each further extension can be for a similar period.
However, once the exceptional circumstances no longer exist, the Trading Member cannot seek any further extension for any reason.
Therefore, the extension facility can only be used as long as the circumstances preventing the sale of securities continue.
Client must be informed about every pledge extension
Whenever the pledge period is extended, the Trading Member must send a communication to the client. The client must therefore be informed each time an extension of the pledge is granted.
Failure to seek extension on time will lead to automatic release
If the Trading Member fails to submit the pledge extension request within the prescribed time, the pledged securities will be released automatically. SEBI said the release will take place through an automatic system-based process.
Therefore, brokers must submit an extension request within the stipulated timeline if the exceptional circumstances continue.
All other provisions contained in the Master Circular for Stock Brokers will continue to remain applicable.
Stock exchanges must issue these operational guidelines within 30 days from the date of issuance of the SEBI circular. The circular was issued on July 3, 2026.
Click here to download SEBI Circular on Handling of Client’s Unpaid Securities by Trading Members
