Title transfer collateral arrangement
The now-prohibited practice of transferring a client's securities into a Trading or Clearing Member's own demat account for margin purposes, replaced from August 2020 by the margin pledge mechanism.
In plain language
There used to be a much simpler way to give a broker margin: hand over the shares outright, by transferring them into the broker's own demat account. That is a title transfer collateral arrangement — ownership of the securities genuinely moves, if only for as long as the margin is needed.
SEBI decided this left clients too exposed if the broker failed, and banned it outright for margin purposes.
How it works
From Chapter 9, section 9.4: "Transfer of securities to the demat account of the TM/CM for margin purposes (i.e. title transfer collateral arrangements) shall be prohibited," a provision that took effect from 1 August 2020. The same provision states that a client's Power of Attorney in favour of a TM/CM is explicitly not equivalent to the TM/CM collecting margin this way — holding a POA does not, by itself, amount to margin collection.
In its place, a TM/CM must use a margin pledge created in the depository system, under Section 12 of the Depositories Act, 1996, read with Regulation 79 of the SEBI (D&P) Regulations, 2018.
A worked example
Before 1 August 2020, a broker could ask a client to simply transfer 500 shares into the broker's own demat account as margin for a derivatives position — a title transfer collateral arrangement.
From 1 August 2020 onward, that same broker cannot do this at all. It must instead accept those 500 shares only through a margin pledge, created in the depository system, that leaves the shares in the client's own account. A broker who already holds that client's Power of Attorney cannot treat the POA itself as equivalent margin collection either — the POA is not a substitute for a valid margin pledge.
Why NISM asks about it
Chapter 9, section 9.4, states this prohibition directly. Expect the 1 August 2020 effective date, and the fact that this practice is now flatly banned for margin purposes, replaced by the margin pledge mechanism.
Common exam traps
- Title transfer collateral arrangements are banned for margin purposes from 1 August 2020 — not merely discouraged.
- Holding a client's Power of Attorney is explicitly not the same as margin collection under this rule.
- Do not confuse this with an ordinary off-market transfer between two unrelated demat accounts, which remains entirely lawful outside the margin context.
Check yourself
1.A trading member wishes to re-pledge client securities received as margin. In whose favour may it do so?
- a)In favour of any demat account of the clearing member
- b)Only in favour of the CM's demat account tagged as "Client Securities Margin Pledge Account"
- c)Directly in favour of the Clearing Corporation
- d)In favour of its own proprietary demat account
Show the answer
Answer: (b) Only in favour of the CM's demat account tagged as "Client Securities Margin Pledge Account"
The TM can re-pledge only in favour of the CM's demat account tagged as "Client Securities Margin Pledge Account".
Option C skips a link in the chain. The permitted route is client → TM → CM → CC: a client can margin pledge securities with the TM, and TM can re-pledge the same with CM, and CM in turn can re-pledge the same to the Clearing Corporation. Only the CM deals with the CC, and even then the CM shall create a re-pledge of securities on the approved list only to the CC out of the "Client Securities Margin Pledge Account".
Option D is exactly what the 2020 framework was written to stop. Transfer of securities to the demat account of the TM/CM for margin purposes (i.e. title transfer collateral arrangements) shall be prohibited, effective August 01, 2020.
Two consents make the chain lawful: the pledge request form shall have a clause regarding express consent by the client for re-pledge of the securities by the TM to CM and further by the CM to CC, and OTP confirmation from the client is also required if securities of such client are being re-pledged. Throughout, the complete trail of such re-pledge shall be reflected in the demat account of the pledgor.
2.Under SEBI's circular dated February 25, 2020 on margin obligations, which statement is CORRECT?
- a)Clients must transfer securities to the demat account of the TM / CM as margin, from February 25, 2020
- b)TM / CM may accept securities as margin either by title transfer or by margin pledge, at their option
- c)From August 1, 2020, TM / CM may accept securities collateral from clients only by way of margin pledge, and transfer of securities to the TM / CM's demat account for margin (title transfer collateral) is prohibited
- d)The provisions applied only to clients who had not given a Power of Attorney to the TM / CM
Show the answer
Answer: (c) From August 1, 2020, TM / CM may accept securities collateral from clients only by way of margin pledge, and transfer of securities to the TM / CM's demat account for margin (title transfer collateral) is prohibited
The workbook: "The provisions of the said circular came into effect from August 1, 2020. TM / CM were allowed to accept collateral from clients in the form of securities, only by way of 'margin pledge', created in the Depository system in accordance with Section 12 of the Depositories Act, 1996 read with Regulation 79 of the SEBI (Depositories and Participants) Regulations, 2018." And: "Transfer of securities to the demat account of the TM / CM for margin purposes (i.e. title transfer collateral arrangements) shall be prohibited."
- A gets both the mechanism and the date wrong. February 25, 2020 is the circular date, and title transfer is what was prohibited.
- B is wrong because margin pledge is the only route.
- D is wrong because a POA does not help: holding of a POA shall not be considered as equivalent to the collection of margin.
For this, the TM / CM must open a separate demat account tagged "Client Securities Margin Pledge Account".
Where this is taught
Free preparation for NISM Series VIRelated terms
- Demat Debit and Pledge InstructionA limited, optional authorisation letting the broker (or broker-DP) debit a client's demat account only for settlement delivery, margin pledges, exchange MF orders and open-offer tenders - in place of a PoA.
- Margin pledgeThe only permitted way for a client to give securities as margin — a special pledge created in the depository system that leaves the shares in the client's own demat account instead of transferring them to the broker.
- PledgeA charge created over demat securities in favour of a lender who may appropriate them unilaterally on default — created by book entry under section 12 of the Depositories Act, not by handing over anything.
- Re-pledgeA further pledge of securities already pledged to a Trading or Clearing Member, moving the same margin pledge down the TM-to-CM-to-CC chain without the shares ever leaving the original client's demat account.