Understanding regulatory changes of Up streaming & Down streaming and its impact on customers

A recent circular from the Securities and Exchange Board of India (SEBI) has introduced a few change in the process of handling funds placed with Stock Brokers and Clearing Members. Let's go through the details of this change and understand how it affects traders and investors.

The Circular: SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/084 and dated June 08, 2023, introduces the concept of "Up Streaming" and "Down Streaming" of funds to Clearing Corporation (CC). The primary goal of this circular is to enhance the safety of customer funds held with Stock Brokers/ Clearing Members by mandating the implementation of this process.

What is Up stream and Down stream of funds?

Up Streaming of funds means debiting the peak margin (Highest margin created anytime during the day) and pay-in obligation from client's account and upstream the funds to Clearing Corporations (CC). The movement of fund would be customer depositing funds in ICICI Up Streaming Client Nodal Bank Account- USCNBA), from their money will move to Broker's Settlement account and then to Clearing Corporation. That means, the funds will be debited from the clients account and same will be Up Streamed on the same day to Clearing Corporation within the given cut off time. The Cut-off time given by CC for the same is 7.00 PM.

Down Streaming of funds means any amount that is receivable to the clients wrt the pay-out obligations or peak margin reversal, will be received from Clearing Corporations (CC) to Settlement account of broker and payout to client will be processed from Down Stream Client Nodal Bank account of the broker. Cut off time for Down Streaming is also 7.00 PM. The amount that was deducted from client account towards Pay-in obligation and margin requirement will be credit back to client account after netting off all the Settlement Obligation and Margin requirement deduction on Next working day.

What is the impact of the circular on ICICI direct customers?

A. Block Model Customers: 3 in 1 account where bank account, demat account and trading account all 3 are linked. 

1. "Peak Margin Debit/ Credit" facility will not be available since the Peak Margin is mandated to be debited through the upstreaming of funds once at the end of the day across all segments
2. Customers will not be able to deallocate the funds on the same day to the extent of Peak Margin. They will be able to deallocate the amount on T+1 day, if there is any credit available in the account after settling all Pay-in obligations, Statutory Charges and Margin Adjustments.
3. "Release I-Sec Margin" facility in all Derivatives segment will not be available and the excess margins debited, if any, will be received through the Down Stream a/c on T+1 day before market opens.

Let’s understand this change with an example: 

• You have allocated ₹3,00,000 in the Equity Segment
• You placed 2 orders of

1. Order #1: Buy order for ₹1,00,000
2. Order #2: Buy order for ₹80,000

• The peak margin required is computed as ₹1,80,000.
• Order #1 is executed and Order #2 is cancelled.
• Prior to the requirement of Upstreaming, the amount of ₹80,000 pertaining to cancelled Order#2 would have also been available to you for deallocation immediately. Total amount available for deallocation would have been ₹2,00,000 (Equity segment allocation of ₹3,00,000 less Executed Order of ₹1,00,000 ).
• After Upstreaming requirement, the peak margin amount of ₹1,80,000 will be up streamed to CC for the day. You will be able to deallocate only the balance upto ₹1,20,000 (Equity segment allocation of ₹3,00,000 less Peak Margin of ₹1,80,000) on the same day
• The amount of ₹80,000 will be down streamed to the broker on the next settlement day before market hours. You will be able to deallocate this amount after down streaming.
• Please note that while the amount of ₹80,000 related to cancelled Order#2 will be available for deallocation and transfer to your bank account only on next settlement day, this amount can be used for trading or placing new orders on the same day, as it continues to be part of peak margin.

B. Deposit (2-in-1 account) Model Customers:

There will be no change for deposit model customer in terms of Upstreaming/ Downstreaming of funds.

However, in deposit model, customers will now not be able to withdraw/ reduce funds from 'Trading Account Free Balance' to their 'Bank Account' after the cut off time till the process is completed for the day.

C. All customers:

Any brokerage plan change request that is placed before 3:30 PM will be done on T+1 day and any request that is placed after 3:30 PM will be done on T+2 day.

These changes are set to come into effect on different dates based on the segment:

• from 29th August, 2023, for Equity, Currency, and Commodity segments, and
• from 31st August, 2023, for the F&O segment

Let’s understand the flow with the diagram

USCNBA – Up Streaming Client Nodal Bank Account

DSCNBA – Down Streaming Client Nodal Bank Account

CC – Clearing Corporation