Running account
Also written Running account authorisation · Running account authorization
A client's written, revocable authorisation letting the broker keep the client's funds instead of paying them out within one working day of pay-out, subject to settlement at least every 30 or 90 days.
In plain language
The default rule is simple: when a client's trade settles, the broker must pay the client's money out within one working day of the pay-out. For an active trader that means money going back and forth constantly.
A running account is the alternative. The client authorises the broker, in writing, to keep his funds with the broker so they can be used for the next trades. The authorisation is dated, signed by the client himself, and revocable at any time.
A running account is not an open-ended deposit. The broker must still settle the account - pay out the client's free balance - at least once a month or once a quarter, whichever the client chooses, on dates the exchanges fix in advance. Since 2019 running accounts are for funds only; running account settlement for securities has been discontinued.
How it works
From Chapter 3 (section 3.2.1.2), Chapter 4 (section 4.2.2) and Chapter 6 (section 6.3):
The authorisation must be dated and revocable, signed by the client only - not by an Authorised Person or PoA holder - and must contain a clause that the client may revoke it at any time.
Settlement cycle. The TM settles the running account after considering end-of-day funds obligations across all exchanges, at least once within a gap of 30 or 90 days as the client prefers (monthly or quarterly), on the first Friday and/or Saturday of the month or quarter. The exchanges jointly issue the annual calendar at the start of the financial year. Once settled, the client is informed by SMS and email.
Other rules:
- A statement of accounts (funds ledger extract and securities register extract) is sent at settlement; the client must raise disputes within 30 working days of the statement.
- The broker may retain funds for outstanding obligations on the settlement date.
- No inter-client adjustment. Funds received from clients stay in the Up Streaming Client Nodal Bank Account and cannot settle another client's running account.
- On request, funds are transferred within one working day if with the broker, and within three working days if with the clearing member/clearing corporation.
- Inactive clients: if a client has not traded for 30 calendar days and funds have lain with the member for over 30 days, the entire credit balance is returned on the next monthly settlement date, whatever cycle the client chose.
- Exempt from periodic settlement: funds/securities used under MTF, collateral in the form of BGs/FDRs, and institutional clients settling through custodians.
A worked example
Illustrative amounts; the rules are the workbook's.
Rohan trades several times a week and signs a dated running account authorisation choosing quarterly settlement.
| Situation | What the broker must do |
|---|---|
| Without the authorisation, a sale credits Rs 80,000 to Rohan at Tuesday's pay-out | Pay Rs 80,000 by Wednesday (one working day) |
| With the authorisation | May retain it for Rohan's next trades |
| First Friday/Saturday of the quarter; ledger Rs 2,40,000 credit, Rs 40,000 due for trades not yet settled | Retain Rs 40,000 for the obligation, pay out Rs 2,00,000, send statement of accounts, SMS and email |
| Rohan stops trading; his Rs 1,50,000 has lain with the broker for over 30 calendar days | Return Rs 1,50,000 on the next monthly settlement date, even though he chose quarterly |
| Rohan asks for his money mid-quarter and it is with the broker | Transfer within one working day |
| Rohan disagrees with the statement | Raise it within 30 working days |
What the broker cannot do: use Rohan's Rs 2,00,000 to settle another client's account, or get Rohan's authorisation signed by a sub-broker or PoA holder on his behalf.
Why NISM asks about it
Running accounts appear in Chapter 3 (client registration, "Authority Letter to settle an account"), Chapter 4 (section 4.2.2 Settlement of accounts, and section 4.1.7 on enhanced supervision), Chapter 6 (section 6.3, the full list of conditions) and Chapter 7 (the Investor Charter timeline: settlement of client funds on the first Friday/Saturday of the month or quarter). Questions test the 30/90-day gap, the funds-only rule since 2019, who may sign the authorisation, and the 30-day inactive-client rule.
Common exam traps
- Funds only. Running account settlement for securities was discontinued by SEBI circular dated June 20, 2019.
- Signed by the client only - not an Authorised Person, not a PoA holder.
- Revocable at any time, and must say so.
- 30 or 90 days is the maximum gap, at the client's choice; settlement falls on the first Friday/Saturday per the exchanges' calendar.
- Inactive for 30 calendar days → returned at the next monthly settlement, overriding a quarterly preference.
- Disputes within 30 working days, not calendar days.
- Chapter 3 wording differs slightly: it says funds are settled within 24 hours of pay-out and the account settled at least once a calendar quarter or month; Chapter 6 says 24 hours / 1 working day and a gap of 30/90 days. Treat them as the same rule.
Check yourself
1.A client asks his broker to maintain a running account for both his funds and his securities. What is the correct position?
- a)Both are permitted, if the client signs a dated and revocable authorization
- b)Only securities may be kept in a running account; funds must be settled within one working day of pay-out
- c)Both are permitted only for clients availing the margin trading facility
- d)Only funds may be kept in a running account — settlement of running account for securities has been discontinued
Show the answer
Answer: (d) Only funds may be kept in a running account — settlement of running account for securities has been discontinued
The workbook: “Vide SEBI circular ... dated June 20, 2019, settlement of running account for securities has been discontinued and therefore, SEBI circulars ... are applicable for settlement of running account of client’s ‘funds’ only.”
The default rule, absent authorization: “Unless otherwise specifically agreed to by a client, the settlement of funds shall be done within 24 hours/1 working day of the pay-out.” A client “may specifically authorize the stock broker to maintain a running account (only for funds)”.
Why the others are wrong:
- Both permitted with authorization — the authorization (dated, revocable, signed by the client only) is required for a funds running account; it cannot revive a securities running account.
- Only securities — exactly backwards.
- Only for MTF clients — the MTF appears only as an exception to periodic settlement of the running account, not as a condition for having one.
2.On which dates is the monthly or quarterly settlement of clients' running accounts carried out?
- a)The last working day of every month or quarter, as chosen by each broker
- b)The fifteenth of every month or quarter
- c)The first Friday and/or Saturday of every month or quarter, as per an annual calendar jointly issued by the stock exchanges
- d)Any date within 30 or 90 days of the previous settlement, as chosen by the broker
Show the answer
Answer: (c) The first Friday and/or Saturday of every month or quarter, as per an annual calendar jointly issued by the stock exchanges
The workbook: “Settlement of running account shall be settled on first Friday and/or Saturday of every month/quarter. To ensure uniformity and clarity on date of such monthly and quarterly settlement of client accounts, Stock exchanges shall, jointly, issue the annual calendar for the settlement of running account (quarterly and monthly) at the beginning of the financial year.”
Why the others are wrong:
- Last working day, chosen by each broker — the dates are uniform and set by the exchanges, not left to each broker.
- The fifteenth — not in the workbook.
- Any date within 30/90 days — the 30 / 90 days figure is the maximum gap “between two settlements of running account as per the preference of the client”, but the actual dates are “the dates stipulated by the Exchanges.”
3.When settling running accounts, in which situation may a stock broker issue a physical payment instrument (such as a cheque) to a client?
- a)Only where electronic payment instructions have failed or been rejected by the bank
- b)Whenever the client prefers a cheque
- c)For amounts below a threshold set by the exchange
- d)For all clients who opted for quarterly settlement
Show the answer
Answer: (a) Only where electronic payment instructions have failed or been rejected by the bank
The workbook: “The required bank details for initiating electronic fund transfers shall be obtained from new clients and shall be updated for existing clients. Only in cases where electronic payment instructions have failed or have been rejected by the bank, the stock broker may issue a physical payment instrument.”
Once the settlement is done, “an intimation shall be sent to the client by SMS on the mobile number and also by email.”
Why the others are wrong:
- Client preference — electronic transfer is the rule; client preference is not an exception.
- Amount threshold — the workbook gives no threshold.
- Quarterly clients — the quarterly/monthly choice concerns the settlement frequency, not the mode of payment.
Where this is taught
Free preparation for NISM Series VIIRelated terms
- Investor CharterSEBI's published statement of what an investor is entitled to from an intermediary — the services, the rights, the dos and don'ts, and a table of activities with the timeline each one must be completed in.
- Contract noteThe legal record of a trade a stock broker executed for a client on an exchange, issued within 24 hours in the exchange-prescribed format, physically or as a digitally signed electronic contract note.
- Margin trading facilityA SEBI-regulated facility in which a stock broker lends part of the purchase price of eligible shares or equity ETFs to a client, holds the bought stock as pledged collateral and charges interest.
- Pay-outThe leg of settlement in which the clearing corporation releases what members are owed: funds credited to their clearing bank accounts, and securities now credited directly to the client's demat account.
- Power of AttorneyA legal document by which you authorise somebody else — often your stock broker or depository participant — to operate your demat and bank account on your behalf. It is optional, and revocable.
- Trading accountThe account you open with a SEBI-registered stock broker to buy and sell securities on a stock exchange. You get a Unique Client Code, a contract note within 24 hours of each trade, and alerts.
- USCNBAThe bank account in which a stock broker or clearing member must receive all client funds, named "Name of the SB/CM – USCNB account" under SEBI's standardised bank account nomenclature.
- DSCNBAThe bank account from which a stock broker or clearing member must pay funds to clients, named "Name of the SB/CM – DSCNB account" under SEBI's standardised bank account nomenclature.