SEBI Eases Client Code Modification Rules for Net Settlement by MMS, No Penalty on Specific Transfers

India’s securities regulator, SEBI, has announced a relaxation in its rules regarding client code modifications, specifically allowing changes from Managed Money Services (MMS) to Asset Management Companies (AMC) without imposing penalties. This move is aimed at facilitating net settlement by MMS and addressing long-standing industry requests for more flexible error correction in trade settlements.

 

Key Highlights:

 

Penalty Waiver for Specific Modifications: SEBI’s new provision means that when a client code needs to be changed from MMS to AMC for the purpose of enabling net settlement, such modifications will not attract the usual penalty. This is a significant shift from the earlier regime, where almost all client code changes—especially for non-institutional trades—were subject to strict penalties to discourage misuse and ensure compliance.

 

Genuine Error Correction: The facility to modify client codes is still intended for genuine mistakes, such as communication or punching errors. SEBI and exchanges require that such changes be well-documented and approved internally, ensuring the process is not abused. Supporting documents and detailed logs must be maintained for each modification.

 

Industry Impact: The change is expected to reduce operational hassles for brokers and custodians, who previously faced penalties even for bona fide corrections necessary for netting and settlement efficiency. It aligns with SEBI’s broader efforts to make compliance more practical without compromising market integrity.

 

Oversight Remains: While penalties are waived for these specific cases, SEBI will continue to monitor modifications closely. Any pattern of misuse or non-genuine changes will still attract regulatory scrutiny and possible sanctions.

 

This regulatory tweak is seen as a positive step for smoother trade settlement operations and is likely to be welcomed by market participants handling large institutional flows.

 

Sources: Axis Capital, TradeSmart, Madhuvan Securities