Sebi clarifies rules on pledging securities for discretionary PMS clients to raise loans

The clarification was issued in an informal guidance letter to Share India Securities, following the intermediary's query on whether securities purchased under discretionary PMS could be pledged by clients. Sebi said discretionary PMS clients remain the beneficial owners of securities purchased through the service and therefore have the right to use their own assets, including securities held under PMS, as collateral for loans they personally avail.

The regulator said rules do not prevent discretionary PMS clients from initiating pledge of securities, provided that the pledge is initiated solely at the clients discretion and for their own benefit.

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Regulation 23(8) of the PMS Regulations, 2020 prohibits portfolio managers from borrowing funds or securities on behalf of clients.

Sebi said this restriction does not prevent a discretionary PMS client from independently pledging securities.

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