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Bid to tackle misuse of pool account -- SEBI proposes direct settlement to investor

Our Bureau

MUMBAI, Jan. 2

IN a bid to tackle the alleged misuse of the pool account by brokers, the capital markets regulator, Securities and Exchange Board of India (SEBI), proposes to introduce a new system to ensure that the settlement is made directly to investors.

In a meeting with the Bombay Stock Exchange, National Stock Exchange and Delhi Stock Exchange and the two depositories -- NSDL and CDSL -- and depository participants, SEBI said it had taken this step to ensure efficiency, liquidity and to make sure that the corporate benefits reached the investors.

The regulator said that corporate actions such as dividend payment and issue of bonus shares in respect of balances in the pool account, which remain outstanding on the record date, must be credited to the pool account of the clearing member and the clea ring member must credit the amount to separate client account.

This would enable the clients to receive the corporate benefits. The regulator said that it would discuss independently the matter related to issue of rights shares.

As per the in-principle decisions taken at the meeting on Tuesday, henceforth, the clearing house (CH)/clearing corporation (CC) will ascertain from each clearing member, the beneficial account details of investors due to receive pay-out settlement.

Based on this information, the CC/CH will send pay-out instructions to the depositories, so that investors receive

pay-out directly to the extent of instructions received from the respective clearing members (CM). In case such instructions are not received, the securities will go to the clearing member pool account.

Further modalities in this regard and penalty structure for non-performance will be worked out by a group chaired by Prof J.R. Varma, member SEBI. Other members of the committee include Mr Gagan Rai, Executive Director, NSDL, Mr Raut of CDSL, Mr Ragavan Putran (NSE), Mr Chakrapani (BOICL), Mr Garela (BSE), the Executive Director, DSE, and Mr Pratip Kar as member secretary.

The group will also consider ways to reduce balances in the existing pool account.

It also proposed to introduce an online inter-depository transfer facility for both on-market and off-market transactions in the place of the existing batch method. NSDL currently transfers information twice a day to CDSL. Henceforth, it will be done as and when the instructions are received.

Furthermore, as a measure of transparency, the depositories agreed to publish their annual reports on their Web site.

NSDL would also be modifying its bye-laws so that corporate benefits could be transferred to the pool account. ``The bye-laws need to say we will be giving the benefit to the clearing member to be passed on to the beneficial owner,'' Mr C.B. Bhave, Manag ing Director, NSDL, said. CDSL already has the proviso in its bye-laws.

SEBI had early this year summoned brokers with large balances in their pool accounts in a bid to identify the reason behind their inability to bring their accounts to zero.

A pool account is a demat account. All sales made by clients are received in the pool account for delivery to the clearing house and all purchases made by clients are received from the clearing house for delivery to clients. In other words, it serves as a central account for brokers to facilitate purchases and sales of clients.