What is T+5 (CUSPA) Feature?

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:pushpin: What is CUSPA?

CUSPA is an account maintained by brokers with depositories like NSDL or CDSL. It is used to manage securities purchased by clients who fail to make the required payment on the settlement day (T+1). If a client does not fulfill their payment obligation, the purchased securities are transferred to the broker’s CUSPA account and are automatically pledged as collateral for the unpaid amount .

:hourglass_not_done: Understanding T+5 in CUSPA

The T+5 timeline indicates that if a client does not clear their outstanding dues within 4 trading days from the trade date (T+4), the broker is required to liquidate the pledged securities on the 5th trading day (T+5). This process is in line with the guidelines set by the Securities and Exchange Board of India (SEBI) and is enforced by depositories like CDSL

:counterclockwise_arrows_button: Process Overview

  1. Trade Execution (T): A client purchases securities.
  2. Settlement Day (T+1): The broker delivers the securities to the client’s demat account.
  3. Payment Failure: If the client fails to make the payment, the securities are transferred to the broker’s CUSPA account and pledged.
  4. Grace Period: The client has 4 trading days (T+4) to clear the outstanding dues.
  5. Liquidation (T+5): If payment is not received by T+4, the broker is obligated to sell the pledged securities on T+5 to recover the dues.

:warning: Key Considerations

  • Mandatory Compliance: Brokers must adhere to the T+5 liquidation rule as per SEBI and depository guidelines.
  • Investor Impact: Failure to clear dues within the stipulated time can result in the forced sale of securities, potentially at unfavorable prices.
  • Charges: Brokers may levy charges for auto-pledging and unpledging of securities under CUSPA.

:white_check_mark: Recommendations for Investors

  • Timely Payments: Ensure that funds are available in your trading account to meet settlement obligations.
  • Monitor Positions: Regularly check your holdings and transaction statuses to avoid unintended pledging.

By understanding the CUSPA mechanism and the T+5 timeline, investors can better manage their trades and avoid potential penalties associated with unpaid securities.