SEBI Issues Circular in Regard to Bank Guarantees (BGs) Created Out of Clients’ Funds

On 25th April 2023, the Securities and Exchange Board of India issued a Circular in regard to Bank Guarantees (BGs) Created Out of Clients’ Funds.

Currently, Stock Brokers (SBs)/ Clearing Members (CMs) pledge client’s funds with Banks which in turn issue Bank Guarantees (BGs) to clearing corporations for higher amounts. This implicit leverage exposes the market and especially the client’s funds to risks. Pursuant to discussions with various stakeholders, it has been decided to implement the following measures in order tosafeguard the interests of the investors –

• Beginning 01st May 2023, no new BGs shall be created out of
• clients’ funds by SBs/CMs.
• Existing BGs created out of clients’ funds shall be wound down
• by 30th September 2023.

The provisions of this framework shall not be applicable for proprietary funds of SBs/CMs in any segment and SB’s proprietary funds deposited with CM in the capacity of a client.