Based on Discussion with Clearing Corporations (CCs) and Technical Advisory Committee (TAC), SEBI vide circular dated 20th June 2024 have decided to devise the framework for system audit of Professional Clearing Members (PCMs)

Accordingly PCMs are required to conduct system audit as per the following annexures and description: -

SEBI post extensive discussion with the Stock Exchanges, Clearing Corporations (CCs) and Depositories and also post discussion in meetings of Intermediary Advisory Committee and Broker’s Industry Standard Forum (ISF) have decided that the process of securities payout directly to the client account now shall be mandatory.

Accordingly, after extensive deliberations, the following has been decided:

• The securities for pay-out shall be credited directly to the respective client’s demat account by the CCs

• CCs shall provide a mechanism for Trading Member (TM)/Clearing Members (CM) to identify the unpaid securities and funded stocks under the margin trading facility.

• With regard to unpaid securities, the processes as specified at para 45 of SEBI “Master Circular for Stock Brokers” dated May 22, 2024 shall be applicable.

• With regard to funded stocks under the margin trading facility, para 41.9 of SEBI “Master Circular for Stock Brokers” dated May 22, 2024, is amended as follows

“Funded stocks held by the TM / CM under the margin trading facility shall be held by the TM / CM only by way of pledge. For this purpose, the TM / CM shall be required to open a separate demat account tagged ‘Client Securities under Margin Funding Account’ in which only funded stocks in respect of margin funding shall be kept/ transferred, and no other transactions shall be permitted. Such funded stocks shall be transferred to respective client’s demat account followed by creation of an auto-pledge (i.e., without the requirement of a specific instruction from the client) with suitable reason, in favor of ‘Client Securities under Margin Funding Account’.

• In case of any shortages arising due to inter se netting of positions between clients i.e., internal shortages, the following measures shall be taken to streamline the processes of handling of such shortages across the market.

• M/CM shall handle such shortages through the process of auction as specified by CCs.

• In such cases, the brokers shall not levy any charges on the client over and above the charges levied by the CCs

The return on investment is a major factor attracting investors to invest in any MF scheme. It is felt that the “Risk Adjusted Return” (RAR) of a scheme portfolio represents a more holistic measure of the scheme’s performance because it quantifies the amount of return generated by a MF scheme for each unit of risk taken to achieve that return. However, the extant regulatory framework does not mandate disclosure of RAR along with the returns of a MF scheme and also there is no uniform practice followed by the AMCs regarding disclosure of RAR of their schemes.

Based on the observation of current industry practices regarding disclosure of risk adjusted returns, public consultation is sought on following proposal’s: -

1. Disclosure of Ratio of tracking difference to tracking error (IR) as a measure for disclosure of RAR along with the scheme’s performance.

2. Rationale regarding the methodology discussed above for IR for each category of Mutual Fund.

3. Calculation & Disclosure of IR on daily basis on the website’s of AMCs

4. Disclosure of annualized return of the scheme of past six months in line with the current guidelines along with the disclosure of current performance.

5. Format of Disclosure of IR on the website of AMFI, AMCs, SIDs & KIMs.