New: (CUSPA) Change in the process of handling Unpaid Securities

Starting from April 1, 2023, the handling of unpaid securities belonging to clients will be conducted through a pledge mechanism in accordance with the SEBI circular dated November 11, 2022. Any securities for which the client has not yet made payment are considered as “unpaid securities”.

Under the new process, if you purchase securities but fail to make payment, resulting in a negative balance in your trading ledger, the unpaid securities will be transferred to your demat account upon receipt of payout from the exchange on the T+1 day (settlement day) unlike the previous payout of securities being in broker’s pool account. However, these securities will be automatically marked for pledge against the Client Unpaid Securities Pool Account (CUSPA). If payment is not made within T+1+5 (i.e. T+6) days, our risk management team will sell those unpaid securities in accordance with our RMS policy. The securities will then be automatically invoked to our CUSPA account to meet the exchange securities pay-in obligation.

The following changes will occur due to this new process:

1. Corporate Actions:

All corporate actions, such as splits, bonuses, and dividends, will occur directly in your demat account. This will provide greater transparency and eliminate operational inconveniences, such as fractional entitlement against splits and bonuses, dividend credit in your trading ledger, and accounting for TDS on dividends.

2. Pledge Charges:

As the shares will be transferred to your demat account and automatically pledged in favour of our CUSPA account, a pledge charge of Rs. 12.50 + GST will be applicable per transaction/ISIN.

3. Unplege Charges:

When securities are sold, they will first be unpledged before making actual early pay-in/pay-in to the exchange. Therefore, an un-pledge charge of Rs. 12.50 + GST will be applicable per transaction/ISIN.

4. Demat Transaction Charges:

To make early pay-in/pay-in to the exchange, a regular demat transaction charge of Rs. 12.50 + GST will be applicable per transaction/ISIN when securities are sold.

5. Invocation, RMS Square Off, and Stamp Duty Charges:

If payment is not made within T+6 days, our risk management team (RMS) will initiate a sale in accordance with our risk policy, and in such cases, an RMS square off charge of Rs. 20 per transaction/ISIN will be applicable. As the shares will be invoked, an invocation charge of Rs. 12.50 + GST will also be applicable per transaction/ISIN, and a stamp duty of 0.015% of the sale value will apply.


Thanks and Regards

– Shrimohan
Product Operations @ Dhan

3 Likes

Hi Srimohan,
Can you pls help me with some clarifications:

  1. In case of normal equity delivery transaction (where in full funds are there) - settlement happens on T+1. Does the stocks get debited from seller’s DEMAT account on T+1 day? If not, then where do the stocks lie between T & T+1 day. How does the stocks flow from seller’s DEMAT account to buyer’s. What are the intermediate steps?
  2. In case of MTF transaction (where in full funds are not there) - similarly, what are the intermediate steps?
  3. Where does CUSPA account comes in?

@curious_trader

  1. When you sell securities, they are promptly marked for pay-in (known as Early Pay-IN) to the clearing corporation on the same day (T-day), ensuring you receive the full 100% sale value on the same day. Out of this, 20% is allocated for the selling trade (as margin also applies for selling), while the remaining 80% is transferred to you for further trading or investment.

  2. In the case of MTF, shares are credited to your account with specific conditions. If you accept the OTP, the shares are pledged to us (as we have funded them) and hence we call it as MTF successful. However, even if you do not accept the OTP, the shares are still credited to your account. But now two things can happen. If your ledger balance remains adequate, there’s no issue (as good as normal trade). But if it goes into debit, securities equivalent to the debit are marked as CUSPA.

  3. CUSPA functions as an intermediary account where shares cannot be stored but are used only if there’s a pending ledger debit. For instance, if you purchased 100 shares of ABC and your account had a debit during settlement worth 10 shares of ABC, those 10 shares would be pledge marked for CUSPA during payout. Essentially, this signifies that as a broker, we can retrieve these 10 shares from your DP and sell them to cover the debit if you fail to fulfill the obligation within T+5 days. Therefore, when payment isn’t made, we execute a sell instruction, moving 10 shares from your DP to CUSPA (step 1) and then the shares are credited back to your account as free holding (step 2) and subsequently deliver them to the clearing corporation (step 3). This is a recent development by CDSL in handling unpaid securities, commonly known as 3-in-1 instruction. As you can see that CUSPA is solely a transactional account and doesn’t allow shares to be stored.

In summary, shares are credited to clients’ accounts irrespective of any trade type. But might be pledged either to CUSPA or MTF depending on the circumstances.

I hope this explanation brings clarity.

Hi @iamshrimohan

I would like to ask few more questions around MTF & CUSPA, as a laymen user:

  1. How does MTF pledge thing works? As a buyer, I haven’t received the shares in my demat account yet on T-Day, then how come I am able to pledge them in Dhan’s name on T-day through CDSL? Is it like a standing instruction to CDSL that whenever settlement happens, then credit these shares in Dhan’s account?

  2. If your ledger balance remains adequate, there’s no issue (as good as normal trade)

  • do you mean if I have enough balance in my funds, then it will be converted to a normal delivery?
  1. But if it goes into debit, securities equivalent to the debit are marked as CUSPA
  • you told me that CUSPA is an intermediary account & not a storage one. If I don’t have enough balance, where do the stocks lie on T+1 day - which account? And why they are squared off on T+5 day (not before, not after, why specifically on 5th day)
  1. Let’s suppose I bought 100 shares of XYZ. I had a shortfall of funds for 10 shares - these 10 will be marked under CUSPA. Now, they will be squared off on T+5 day.
    What will happen if the value of those 10 shares increase or decrease during those 5 days? Who will get the profit or loss?

Yes its an advance instruction which allows the shares to be pledged in the favour of Dhan when the payout is received.

It will be converted to normal trade only if you do not accept the OTP, which means you do not authenticate us to mark the shares pledged in our favour

Yes

The stocks does not move from your demat, they are just marked pledged in the favour of CUSPA. T+5 is a regulatory process which we follow.

Also, do share me your UCC over DM, I’ll arrange a call with you and help you with your queries on the same. Also suggest a suitable time to call, i’ll block my calendar.

Hi @iamshrimohan - how to DM here? Can you pls send me a direct mesaage. Will share all the details there. Thanks!!

Hi.
You didn’t mention that negative balance will lead to pleadge of additional shares on 5th day…
It is applicable?
Like, theres negative of 19k in ledger (few shares auto pledged)
On t+5 days, it is 15k negative, (receovered from negative 19k), are another set of shares pledged on this 5th day? If yes, why?