Why do trading members hold shares on behalf of beneficial owners?

Modified: 29-Jun-20

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  1. Why do trading members hold shares on behalf of beneficial owners?

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Why do trading members hold shares on behalf of beneficial owners?

Hi Sir,

One doubt –In shareholding pattern in BSE they show something as “Details of disclosure made by the Trading Members holding 1% or more of the Total No. of shares of the company.” below it

Details Of Holding By Trading Members

Sl. No.–Name of the Trading Member –Name of the Beneficial Owner—No. of shares held— % of total no. of shares–Date of reporting by the Trading Member

Here, I wanted to know what the trading members do by holding the shares of the beneficial owner. Do they regularly trade with those stocks & maintain liquidity in the market? Or they trade on behalf of Promoters & earn profit?

Thank you.

 

Author’s response:

Hi,

Thanks for writing to us!

Let us take the example of a sample case where a trading member may hold shares on behalf of the beneficial owner.

If an investor buys shares of a company through a stockbroker (i.e. trading member), then the stock exchange/clearing corporation sends the shares to the stockbroker (also called as a trading member). These stocks usually remain in a common pool account with the stockbroker unless the investor gives instructions to the stockbroker to shift these shares to the investor’s Demat account (CDSL or NSDL).

These shares lying in the common pool account of the stockbroker, which are not transferred by the investor to her Demat account, is one example of the trading member holding shares on behalf of beneficial owner (the investor).

Investors (beneficial owners) may leave the shares in the common pool account for many purposes:

  1. To take financing (margin funding) from the broker
  2. Allow the broker to trade on behalf of the investor etc. or any other reason.

Read: How to Safeguard Stocks with Discount Brokers?

All the best for your investing journey!

Regards

Dr. Vijay Malik

P.S.

 

DISCLAIMER

Registration Status with SEBI:

I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013

Details of Financial Interest in the Subject Company:

Currently, I do not own stocks of any of the companies discussed above.

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