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SEBI’s new rules for direct payout of securities: What’s changing?

October 7, 2024

Update: Starting February 24, 2025, the clearing corporation has implemented direct payout of securities that allows credit of shares directly to your demat account. As a result, you will no longer be required to authorise your MTF purchases with the CDSL OTP. Read more

The Securities and Exchange Board of India (SEBI) has introduced guidelines that will change how securities are credited to investors’ demat accounts. Currently, securities are credited to the broker, who then transfers them to the investor. Under new rules, securities will be directly credited to the investor’s demat account, making the process more efficient. These changes will happen in two phases starting on October 14, 2024. Here is an overview of what’s changing, how these changes will impact investors and brokers, and what to expect as the new regulations are rolled out:

How securities are currently credited to an investor’s demat account

When securities are bought, the Clearing Corporation (CC) first credits them to the broker’s pool account, after which the broker transfers the securities to the buyer’s demat account. Until this transfer is made, the broker holds control of the securities.

Another method called “direct payout for net settlement,” and here’s how it works:

  1. If the broker has 1,000 buyers and 500 sellers, 500 buyers are matched with 500 sellers, and the CC credits the shares directly to the remaining 500 buyers.
  2. If 100 of the sellers fail to deliver the shares, i.e., the shares are short delivered, the broker must either acquire them from the market or participate in an auction.
  3. If the shares cannot be obtained through the auction, the settlement is completed at a close-out rate.

Due to these complexities, Zerodha does not use the net settlement method.

How SEBI’s guidelines will change the process

The guidelines will be rolled out in two phases and will reduce the broker’s role by allowing the CC to directly credit securities to investors’ accounts.

  • Phase 1: October 14, 2024 – January 13, 2025

During this phase, the CC will transfer securities directly to investors’ demat accounts for all equity cash segments and physical settlements.

However, in cases where the payout cannot be completed—such as rejected payouts, inactive demat accounts, or excess pay-in from a clearing member—the securities will still be temporarily credited to the broker’s pool account.

  • Phase 2: Starting January 14, 2025

In the second phase, the direct payout system will apply to all security transactions, including Securities Lending and Borrowing (SLB) and Offer for Sale (OFS). This phase will fully implement the direct payout system, eliminating most of the broker’s involvement in the settlement process.

And in cases of short delivery, the CC will handle auction settlements directly, avoiding the previous complications that involved brokers sourcing shares from the market or settling using cash close out.

How securities are currently pledged with the broker

Currently, when a client buys securities without paying the full amount or through Margin Trading Facility (MTF), brokers manage the process. Here’s how it works:

  1. If the full payment is not made or the securities are bought using margin trading, the broker creates a pledge. This means the securities are transferred to the client’s demat account but are marked as “pledged” because the payment is incomplete.
  2. Once the client makes the full payment, the broker releases the pledge, giving the client full ownership of the securities.

During this process, brokers are responsible for managing pledged securities until payment requirements are fulfilled.

How SEBI’s guidelines will change the process

Under the guidelines, brokers will no longer handle pledges for unpaid or margin-funded securities directly. Instead, if a client doesn’t pay for the securities in full, the broker will request the CC to mark the pledge directly in the client’s demat account. Once the securities are fully paid for, the pledge will be released.

What changes for you? 

As a client, nothing changes for you. These changes will take place behind the scenes and aim to improve the system’s efficiency and safety of client’s securities.

If you have any questions about SEBI’s new rules for direct payout of securities, please leave them in the comments below.

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51 comments
  1. Mayank choudhary says:

    Hii.
    I didn’t get any mag or mail from cdsl to accept pledge request.
    However I activate DDPI .

    • Shruthi says:

      Hi Mayank, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  2. Bhawani pareek says:

    For cdsl authorisation still pending for MTF and Iam getting mail or sms from CDSL

  3. For cdsl authorisation still pending for MTF and Iam getting mail or sms from CDSL says:

    For cdsl authorisation still pending for MTF and Iam getting mail or sms from CDSL

    • Shruthi says:

      Hi, you will no longer be required to authorize your MTF purchases with the CDSL OTP. In case you are still receiving CDSL authorisation notifications, please create a ticket at support.zerodha.com and provide a screenshot so we can get this checked.

  4. Haranadh Obilisetty says:

    Today I purchased REC in MTF. I didn’t get any message or email to authorise my MTF purchase. What should I do now to authorise my MTF purchase

  5. Balasundararaj says:

    For cdsl authorisation still pending for MTF and Iam getting mail or sms from CDSL

  6. Balasundararaj says:

    For cdsl authorisation still pending for MTF

    • Shruthi says:

      Hi Balasundararaj, you will no longer be required to authorize your MTF purchases with the CDSL OTP. This will be auto-pledged now.

  7. mukund says:

    what to do to convert MTF Trade to CNC trade
    say after T+1 days if having sufficient balance in zirodha app
    i.e i don’t want to sell the shares now / want to hold trade without MTF after T+1 days

  8. Punit Jain says:

    Can we change MTF to CNC during or after market ?

  9. Ashish Lonkar says:

    Kindly elaborate in simple term

  10. Sonika jain says:

    Vert nice more benefits

  11. Ravinder Singh says:

    Post comment

  12. Deepak says:

    Mere ek question hai..
    Agar maine 1 Lakh rs mtf kre mns maine loan ( mtf ) liye ..agar mere share 10 % – me chla jata hai to mere share mere portfolio me rhega ya jisne mtf kra hai wo usko sell kar dega ?

  13. Anil kumar mittal says:

    Can I sale pledged share any time.

  14. Vaibhav Omer says:

    Can I convert mtf shares to delivery

  15. Chitrakala says:

    Super

  16. Atham Chitrakala says:

    Tnq

  17. kuppanur perumalsamy gowder moorthy says:

    sir to purchase of dcw qty 490nos by mtf.. not receive the otp message for pledge acceptance.. please send the otp link sir thank you… my number 7708906666

    • Shruthi says:

      Hi, this will now be auto-pledged. You will no longer need to authorize your MTF purchases with the CDSL OTP, as mentioned in the update at the beginning of the article.

  18. Priya says:

    Tdy I bought share in MTF account ..what is the pledging process and NXT I have to do?

    • Shruthi says:

      Hi Priya, this will now be auto-pledged. You will no longer need to authorize your MTF purchases with the CDSL OTP, as mentioned in the update at the beginning of the article.

  19. abdi says:

    When Zerodha is going to allow MTF conversion to fully paid cash shares, like other brokers ie IDBIdirect etc

  20. Vinayak shinde says:

    Pledge kaise karna hai

  21. Kiran patel says:

    Sir mtf ka process

  22. Rakesh says:

    To main Aaj kharide gaye MTF stocks ko pledge kaise karun

  23. Nek Ram says:

    How can I pledged the mtf position

  24. Mohit Chauhan says:

    Sir share kaise pledge hoge ab

    • Shruthi says:

      Hi Mohit, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  25. Kalpesh kiritbhai zinzuvadiya says:

    Ab share pledge karne ka prosses kya hoga

    • Shruthi says:

      Hi Kalpesh, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  26. PRAMOD SHARMA says:

    NEED INFORMATION REGARDING MTF TRADING THAT SHOULD I PLEDGE MTF STOCKS OR NOT REQUIRED PLEDGE

    • Shruthi says:

      Hi Pramod, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  27. Suraj Kumar says:

    What Happened if I Buy Some Share with MTF facility how to pledge them aur hold .

    • Shruthi says:

      Hi Suraj, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  28. Chellappa says:

    WHETHER TO DAY BOUGHT SHARES ARE TO BE PLEAGED BY ME.? BEFORE 7 PM

    • Shruthi says:

      Hi Chellapa, this will be auto-pledged now. You will no longer be required to authorise your MTF purchases with the CDSL OTP.

  29. Vignesh S says:

    If I have bought shares on MTF, can I still sell it as usual using MTF the next day or later or is there any change in process? Will eliminating Authorization of Stocks using CDSL has any impact on our MTF Process?

  30. Vinod says:

    I would like to know if, with this new circular, it is now possible to convert MTF purchases to CNC once clients pay the full amount. If yes, will it be done automatically, or do we need to take any action from our side?

  31. Sreekanta Swamy K G says:

    Any time limit for Sale of Shares bought under MTF?

  32. So from now all the MTF bought shares not required the OTP . Right? says:

    I would like to know Form now there is no OTP is necessary for the PURCHASED STOCKS using MTF.

    • Shruthi says:

      Hi,yes. This will be auto-pledged now. You will no longer be required to authorize your MTF purchases with the CDSL OTP.

  33. Adarsh says:

    Hi, I have two demat accounts with two different brokers. When I buy shares, which demat account those shares get credited to?

  34. Abhishek says:

    – what is the role of a broker after the direct payout of securities to the client’s demat account?

  35. J Sankar says:

    Na account is blocked in SEBI

  36. Sajid says:

    Instant settlement or at the end of trading session?

  37. R.S.Sharma says:

    Broker’s role must be phased out gradually and a transparent system be evolved. Brokers do many acts of violating the code of securities which go unnoticed to SEBI. Actually the whole system of buying and selling must come under the direct ambit of the exchanges, Sebi, CDSL and NSDL. On record a lot many brokers do unfair practices and the small investors become their victim in loosing money in the market.

  38. Sonal says:

    Thank you for the information. Is India the first country to do this? It is right?
    Will this also change the trade life cycle from the back end perspective?

  39. Manan Dhrafani says:

    “Under the guidelines, brokers will no longer handle pledges for unpaid or margin-funded securities directly. Instead, if a client doesn’t pay for the securities in full, the broker will request the CC to mark the pledge directly in the client’s demat account. Once the securities are fully paid for, the pledge will be released”

    After this new circular, is a broker required to ‘request’ CC for unpaid/margin-funded securities to mark it as pledge as a mandatory step? Under extreme scenario, what if broker does not ‘request’ the CC to directly mark unpaid securities as pledge, will CC still mark them as pledge securities?