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SEBI allows brokers to Invest Clients’ Fund in overnight MF Scheme; Suspends Registration of Religare Commodities

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SEBI allows brokers to invest clients’ fund in overnight MF schemesOn December 12, 2023, Securities and Exchange Board of India (SEBI) has allowed Stock Brokers (SBs) and Clearing Members (CMs) to park client funds in Mutual Fund Overnight Schemes (MFOS). Currently, they invest only in risk-free government securities.

  • This follows the revision in framework for upstreaming of clients’ funds to clearing corporations by SBs and CMs which was issued in June 2023.
  • MFOS ensures minimal risk transformation of client funds because of overnight tenure and exposure to only risk-free government securities.

This information by SEBI is provided in exercise of powers conferred under Section 11(1) of the SEBI Act, 1992 read with Regulation 30 of SEBI (Stock Brokers)  Regulations,  1992  and  Regulation  51  of  Securities  Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, to protect the interests of investors in securities and to promote the development of the securities markets.

Key Points:

i.Brokers and clearing members should ensure that the overnight schemes invest only in government bond, overnight repo markets and overnight Tri-party Repo Dealing and Settlement (TREPS).

ii.MFOS units should be in dematerialised (demat) form and must necessarily be pledged with a clearing corporation at all times.

iii.As per the revised framework, Client payment requests must be processed by the next settlement day.

  • If not processed on the same day, stock brokers and clearing members must ensure that client funds are deposited with clearing corporations

iv.Brokers and clearing members cannot use clients’ funds to obtain banking facilities, whether funded or non-funded based on Fixed Deposit Receipts (FDR).

  • FDRs to be created only with banks, which satisfy the clearing corporations’ exposure norms as specified by them and/or Sebi.

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SEBI suspends registration of Religare Commodities in NSEL Paired Contracts Case

On December 13, 2023, SEBI suspended the registration of Religare Commodities, a brokerage firm, for its alleged involvement in illegal paired contracts on the National Spot Exchange Ltd (NSEL).

  • The suspension will be for three months from the date of this order or till the FIR filed against the broking firm by EOW (Economic Offences Wing) ceases to be pending or till the noticee is acquitted by a court about the FIR, whichever is later.

Key Points:

i.The scheme of paired contracts traded on NSEL caused a loss of Rs 5,500 crore to investors, exposing clients to trading risks in a product lacking regulatory approval.

ii.In September 2009, NSEL introduced paired contracts, enabling the purchase and sale of the same commodity through two different contracts at varying prices on the exchange platform.

Recent Related News:

i.SEBI has empanelled 12 entities, including Ernst & Young LLP (EY), KPMG Assurance and Consulting Services LLP, to provide digital forensic services to its search team for onsite data acquisition during search and seizure operations. This empanelment will be valid for 2 years.

ii.SEBI extended the deadline for adding nominees to demat accounts and submitting PAN and KYC details for physical security holders until December 31, 2023.SEBI also extended the nomination deadline specifically for mutual fund unit holders until January 1, 2024.

About Securities and Exchange Board of India (SEBI):
It was established as a statutory body in 1992 and the provisions of the SEBI India Act, 1992 (15 of 1992) came into force on January 30, 1992.
Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra