NSE has issued Operational guidelines and SOP on Upstreaming of clients’ funds by Stock Brokers (SBs) Clearing Members (CMs) to Clearing Corporations (CCs).
Understanding the Nomenclature and Account Types
SEBI mandates stock brokers (SBs) and Clearing Members (CMs) to maintain specific bank accounts for handling client funds. These are:
- Up Streaming Client Nodal Bank Account (USCNBA): Where SBs/CMs receive client funds related to stock broking transactions. The account is named “Name of the SB/CM – USCNB account”.
- Down Streaming Client Nodal Bank Account (DSCNBA): Used exclusively for payments to clients from stock broking transactions, named “Name of the SB/CM – DSCNB account”.
- Clearing Member – Trading Member Proprietary Account (CM –TM prop account): For CMs who clear trades for other SBs, this account handles proprietary funds.
Account Limitations and Usage
SBs/CMs may maintain multiple accounts in each category, but the total number of USCNBA and DSCNBA accounts must not exceed 30. One common USCNBA and one DSCNBA account can be maintained across segments/exchanges.
Placement of Client Funds
At the end of each day, SBs/CMs must ensure client funds are placed with the Clearing Corporation (CC) in the form of cash, Fixed Deposit Receipts (FDRs), or Mutual Fund Overnight Schemes (MFOS) pledges. Notably:
- FDRs must be with banks meeting CC’s exposure norms, created only from USCNBA, and always lien-marked to a CC.
- FDRs should have a tenure of no more than one year plus one day and be pre-terminable on demand.
- No banking facilities are to be availed against these FDRs.
- Existing FDRs must comply with these conditions upon renewal.
Investment in Mutual Fund Overnight Schemes (MFOS)
SBs/CMs must maintain a dedicated “Client Nodal MFOS Account” for dealing in MFOS units, which must be risk-free, pledged in favor of a CC, and in dematerialized form. The SBs/CMs are responsible for identifying end clients when providing these units as collateral.
Restrictions and Justifications
Bank instruments like client FDRs and BGs cannot be upstreamed to the CCs and are ineligible as collateral. Moreover, any retained client funds must be reported with justifications to the CC by the next settlement day. These justifications include delayed receipt of funds, in-transit funds, and issues with bank processing.
Operational Workflow
- Funds from clients should be received only in the USCNBA and transferred to clients solely from the DSCNBA.
- Transfers between USCNBA, DSCNBA, and Settlement accounts are strictly regulated.
- Proprietary funds of SBs/CMs must be managed separately in designated accounts.
Exemptions
Certain entities like Bank-CMs and proprietary funds of SBs/CMs are exempt from these upstreaming framework provisions.
