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SEBI Rule: SEBI made block mechanism mandatory for share sale transactions, know the benefits
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SEBI Rule: SEBI made block mechanism mandatory for share sale transactions, know the benefits


SEBI Rule: SEBI has made it mandatory for investors to block shares in their demat accounts for sale transactions from August 19. This provision will come into effect from November 14. Markets regulator SEBI has made it mandatory for investors to ‘block’ equity in their demat accounts for sale deals. At present, this facility is optional for investors.

‘Block’ system will become mandatory from November 14
The Securities and Exchange Board of India (SEBI) said in a circular that the ‘block’ arrangement in the demat accounts (account for holding securities and shares electronically) of investors entering into sale transactions will become mandatory from November 14. This simply means that the ‘block’ arrangement in the demat accounts of the investors who entered into the sale transaction would become mandatory from November 14. Under this, the shares of investors doing sale transactions will be blocked in their demat account in favor of the concerned clearing corporation. Under this arrangement, the shares of the investors willing to enter into the sale transaction will be blocked in their demat account in favor of the clearing corporation concerned.

SEBI had decided to introduce ‘block’ system in July
Significantly, in July, SEBI had decided to introduce the ‘block’ system. Under this, from August 1, investors would have the option to freeze the shares in their demat accounts for a sale transaction. SEBI has taken a decision after extensive consultation with depositories, clearing corporations and stock exchanges to bring in the block mechanism.

Early pay-in method option also available
The option of early pay-in method is also available for investors. Under this option the shares are transferred from the demat account of the subscriber to the account of the clearing corporation. If the sale transaction is not done under the early pay-in mechanism, those shares are returned to the customer’s account. This process takes time and there is a cost involved.

Hence, if the sale transaction is not completed, the shares will remain in the demat account of the client. Apart from this, the block will be removed at the end of the trading day. The process of blocking the shares will be on time basis.

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