Securities held in demat can be pledged by non-discretionary PMS clients: SEBI
The Securities and Exchange Board of India (Sebi) has clarified that clients of non-discretionary portfolio management services (ND-PMS) can pledge securities held in their demat accounts for availing loans, provided the pledge is initiated solely at the client’s discretion and for the client’s own benefit
As the beneficial owner of the securities, the client has the right to use its own assets, including those under PMS, as pledge for loans; SEBI said. The Securities and Exchange Board of India (Sebi) has clarified that clients of non-discretionary portfolio management services (ND-PMS) can pledge securities held in their demat accounts for availing loans, provided the pledge is initiated solely at the client’s discretion and for the client’s own benefit.
The regulator in an informal guidance letter issued to Geojit Financial Services on May 18, said that such pledging would not amount to borrowing by the portfolio manager on behalf of the client, which is barred under Sebi’s Portfolio Managers Regulations, 2020. SEBI reportedly said, “Restrictions with respect to borrowing of funds under Regulation 23(8) of the PMS Regulations does not prevent ND-PMS clients from initiating pledge, provided the pledge is initiated solely by or at the client’s discretion.” SEBI’s interpretive guidance had been sought by Geojit after a prospective client asked whether securities bought under the ND-PMS framework could be pledged for borrowing arrangements directly between the client and lender, without involving the portfolio manager. Clients open designated bank and demat accounts with approved custodians, while trading activities are carried out through empanelled brokers. The securities remain in the beneficial ownership of the client and are held in the client’s name. Pledged securities can continue to be counted as part of the portfolio’s manager’s assets under management (AUM) until the pledge is invoked since the beneficial ownership remains with the client; the SEBI also said.