The Securities and Exchange Board of India (SEBI) is internally examining a standard operating procedure (SOP) to govern how stock exchanges should withhold securities or funds pay-outs when they receive directions from law enforcement or judicial authorities.
According to sources familiar with the matter, the proposed framework will lay down uniform steps for exchanges to follow, including blocking the pay-out of funds, stopping the settlement of transactions, and withholding securities linked to the concerned accounts.
At present, there is no uniform SEBI-mandated procedure for such cases. All exchanges have an internal procedure but they largely act on a case-by-case basis whenever they receive directions from enforcement agencies, regulators, or courts.
Current practise
Once the authenticity of the directive is verified, the exchange flags and freezes the relevant client accounts in its settlement system, withholds pay-outs of securities and funds, and informs the clearing members concerned. Clearing houses also have an internal procedure in place to follow through with the instructions.
SEBI is now studying this model to create a broader market-wide framework that can be uniformly applied across exchanges, the person said. The SOP, applicable to trades under T+1 and T+0 settlement cycles, will enlist the types of authorities whose directions can trigger action, along with the operational response depending on the direction.
“Once the directive is issued from authorities such as courts, police, or enforcement agencies, exchanges are to circulate the complaint. If there are more than 25 counterparties, exchanges are to issue a circular or press release,” another person aware of the development said.
Internal examination
Sources said the framework is still being internally vetted before finalising for all exchanges. SEBI did not respond to an emailed request for comments.
The move is expected to smoothen the path for same-day (T+0) settlement cycles as faster settlement compresses the time window available for enforcement agencies to flag suspicious trades or proceeds. A formal SOP would ensure that even in these tighter cycles, exchanges can act promptly and consistently when such orders arrive.