Chapter 19: Running Account Authorization
In normal trading operations, an investor who trades frequently leaves funds with their stock broker rather than requesting a bank payout after every single transaction and transferring funds back for the next trade. Under SEBI regulations, this arrangement is formalized through a Running Account Authorization (RAA).
While a running account provides operational convenience, holding unutilized client balances poses a risk if brokers use client funds for working capital, financing other clients, or proprietary trading.
To prevent broker misuse of idle funds, SEBI mandated the Periodic Settlement of Client Funds and Securities (commonly known as 'Running Account Settlement'). Under this framework, brokers are legally obligated to return unutilized funds from the client's trading ledger back to their verified bank account at scheduled intervals.
Running account settlements follow precise regulatory guidelines:
1. Settlement Frequency Options
At the time of account opening or through subsequent digital consent, the investor chooses their preferred settlement frequency:
- Quarterly Settlement: Occurs once every calendar quarter.
- Monthly Settlement: Occurs once every calendar month.
2. Standardized Settlement Day: First Friday
To eliminate operational discrepancies and streamline settlement across the industry, SEBI mandated that running account settlement must be executed uniformly on the first Friday of the month or quarter (or the preceding trading day if Friday is a holiday).
3. Permissible Retention of Funds
A broker is not required to return 100% of the ledger balance if the client has open trading positions or outstanding pay-in obligations. SEBI allows brokers to calculate and retain:
- The entire amount required to cover open positions and settlement obligations.
- An additional buffer of up to 225% of total margin liability (margin required + 125% margin headroom) across all segments.
- Any balance exceeding this permissible retention limit must be compulsorily transferred back to the investor's bank account before the settlement deadline.
- If a client has had no transactions during the preceding 30 calendar days, the broker must transfer the entire ledger balance back to the client's bank account immediately, without retaining any buffer.
Whenever a broker executes a running account settlement, they must provide the client with a detailed Settlement Statement within 24 hours:
- Shows the exact ledger balance at the time of settlement.
- Details the calculation of open position margins and the retained buffer.
- Explains the exact net payout amount credited to the client's bank account.
- Provides a comprehensive breakdown of all fund movements during the settlement period.
- Includes a notice informing the client that they have 7 working days to raise any discrepancy regarding the calculation.