Sebi to Brokers: Return Idle Cash to Investors 

CONCERNED over brokers misusing funds lying in investors trading accounts, market regulator Sebi has asked the broking entities to return the clients unutilised cash at the end of every month or quarter. Although some brokers are resisting the move citing high costs associated with such frequent transfers of funds to and from the clients accounts, Sebi has also asked them to transfer within a day the funds withdrawn by the investors.
The Sebi has asked stock exchanges to ensure compliance from their broking members and the bourses have, in turn, sought these regulations to be implemented by all brokers in true spirit, a senior official at a leading broking firm said. According to the Sebi directive, brokers will need to settle the accounts of their clients at the end of every month or quarter, whatever is desired by the customer.
Pursuant to this, brokers will need to transfer the funds lying in a clients trading account to the attached bank account electronically, or through cheque if no internet banking account is attached. Besides, the broking firm will also have to send out a monthly or quarterly statement of funds, as per the clients choice, so that the investor is well-versed with the status of cash or securities lying in the trading accounts and can get back to the broker in seven days, if any discrepancy is found.
Generally, investors also tend to keep some cash, whether fresh or those from sale of shares, in their trading accounts for instant access to funds needed for future buy orders. At the time of opening the trading accounts,b rokers ask investors to give them Running Account Authorisation, which makes the funds readily available for future buy orders.
However, there have been cases when brokers use these funds for market dealings without the knowledge of the client and then return the funds back into accounts whenever the customer needs it. The new norms are mainly aimed at checking these kinds of fraudulent activities, sources said.
Besides, brokers generally take two to three days to transfer the funds withdrawn by the clients from their trading accounts. However, the Sebi has now made it mandatory to return such funds within one working day or 24 hours.

Economic Times, New Delhi, 16-08-2010