On April 24, 2026, the Securities and Exchange Board of India (SEBI) released a draft circular proposing five specific changes to the framework governing clients’ unpaid securities, covering shorter payment timelines, same-day pledge release, partial pledge adjustments, automatic depository release after 5 trading days, and re-pledging rules for cases where trading members (TMs) and clearing members (CMs) are separate entities. Industry participants have until May 15, 2026, to submit feedback. The proposals directly modify the Client Unpaid Securities Pledgee Account (CUSPA) framework in place since April 1, 2023.
WHY SEBI IS ACTING NOW
Under India’s T+1 equity settlement regime, a buyer who fails to pay for purchased securities by 8:00 AM the next day does not forfeit them. The shares are credited to their demat account and simultaneously auto-pledged in favour of the broker’s CUSPA, a dedicated account maintained with NSDL or CDSL. The client has up to 5 trading days to clear dues. If they fail, the broker liquidates the pledged securities on day 6. The pledge is set at 125–133% of the outstanding debit, covering the broker against price falls during the window.
CUSPA was built to stop brokers from misusing client assets. In November 2019, Karvy Stock Broking illegally pledged securities worth Rs 2,300 crore belonging to 95,000 investors to raise Rs 851 crore from banks and NBFCs. The scandal drove NSE compensation claims to a peak of 68,518 in FY21, requiring Rs 552 crore in disbursements from NSE’s investor protection fund. After SEBI’s post-Karvy overhaul, including CUSPA, claims fell to 164 in FY24 and disbursements to Rs 52 crore. Three years of live operation have now revealed four friction points, which is what this April 24 draft directly addresses.
THE 5 PROPOSED CHANGES
The most operationally significant proposal gives trading members the flexibility to define a funding period shorter than the current 5 trading days, removing confusion among clients about how long they actually have to pay. The draft states a trading member “may, at its discretion, allow unpaid securities for a shorter duration than five trading days from payout.” Critically, SEBI sets no minimum payment floor in this draft, meaning brokers could theoretically demand same-day settlement. The Brokers’ Industry Standards Forum (ISF), whose representations to SEBI triggered this draft, is expected to flag this gap in submissions before the May 15 deadline.
On pledge release speed, SEBI has proposed that if a client pays before 5:00 PM, depositories must release the pledge the same day. Payments received after that cut-off would be released by the next trading day. Under the current system, even prompt payers can find their securities locked in CUSPA overnight due to depository processing delays, blocking them from selling or using those shares as margin for other trades.
The most investor-friendly proposal introduces partial release of pledged securities based on daily mark-to-market reassessment. A client who owes Rs 70,000 has a pledge set at Rs 87,500 at 125% coverage. If those shares rise to Rs 90,000 in value, Rs 20,000 of that pledge is excess and frozen under current rules. Under the new proposal, that excess must be released daily, reducing the capital locked in CUSPA across millions of settlement cycles.
On dormant pledges, SEBI has proposed that if a broker neither invokes a pledge nor releases it within 5 trading days of pay-out, NSDL or CDSL will automatically release it at the end of the 6th trading day. Without this provision, a broker’s inaction could leave client securities frozen indefinitely. Exceptions are carved out for extraordinary situations such as trading suspension or market disruption.
The fifth proposal closes a structural gap in the broker-clearing pipeline. When a trading member and clearing member are different legal entities, which is common for smaller brokers using third-party clearing members, the current rules left ambiguity over who holds the enforceable pledge if the TM defaults on its fund obligation to the CM. SEBI’s draft requires unpaid securities in such cases to be re-pledged in favour of the CM’s own CUSPA account, giving clearing members a formal documented claim and eliminating the risk of a TM default cascading into a CM shortfall.
BIGGER PICTURE
This draft is part of SEBI’s largest regulatory reset in three decades. On January 7, 2026, SEBI repealed the 1992 Stock Brokers Regulations and replaced them with the SEBI (Stock Brokers) Regulations, 2026, mandating client fund segregation, reinforcing the pledge-re-pledge structure, and prohibiting assured-return schemes. India now has over 160 million registered demat accounts, up from 40 million in 2020. Based on SEBI’s typical 60–90 day post-consultation timeline, a final circular implementing these changes is expected between mid-July and mid-August 2026, though SEBI has not confirmed a specific date.
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FREQUENTLY ASKED QUESTIONS
What is the CUSPA framework that SEBI is proposing to change?
CUSPA is a demat account brokers maintain with NSDL or CDSL to hold securities purchased by clients who miss the 8:00 AM T+1 payment deadline. SEBI created it via a circular dated November 11, 2022 (effective April 1, 2023) to prevent a recurrence of the Karvy Stock Broking scandal, in which Rs 2,300 crore of client securities were misused.
What are the 5 key changes SEBI is proposing on April 24, 2026?
SEBI is proposing the following:
(1) allowing brokers to set a payment window shorter than the current 5 trading days;
(2) same-day pledge release for clients who pay before 5:00 PM and next-day release for payments after that cut-off;
(3) partial release of pledged securities based on daily mark-to-market reassessment;
(4) automatic depository-enforced release of pledges not invoked or released within 5 trading days;
(5) formal re-pledging rules when the trading member and clearing member are separate entities.
What is the deadline to submit feedback to SEBI on these proposals?
SEBI has invited public comments on the draft circular by May 15, 2026. Based on SEBI’s typical 60–90 day post-consultation timeline, a final circular is expected between mid-July and mid-August 2026.
How does the partial pledge release benefit investors?
Currently, even if the market value of pledged securities rises above the outstanding obligation, the entire pledge is held until the client pays or the broker liquidates. Under the proposed rules, brokers must reassess daily; if securities have appreciated above the required 125% coverage, the excess must be freed. For example, if a client owes ₹70,000 and the pledge was set at ₹87,500 but the shares have since risen to ₹90,000 in value, ₹20,000 of that pledge must now be released. This reduces the amount of investor capital locked in CUSPA and improves the ability to use shares for margin or sale.
What happens if a broker neither invokes nor releases a pledge within 5 days?
Under the proposed rules, NSDL or CDSL will automatically release the pledge at the end of the 6th trading day, regardless of broker action. This prevents securities from being indefinitely frozen in CUSPA due to broker inaction or administrative failure. The proposal includes a defined exception for extraordinary situations such as trading suspension or market disruption, for which a timeline extension can be applied.
