What is 'Retention statement'?
SEBI mandates that every broker shall once in a quarter, transfer any excess funds lying in the client's trading account back to his bank account. What it means is that in case there are any unutilized funds in your trading account, the broker is compulsorily required to send these funds back to your bank account.
This was with the intention of ensuring that brokers don't misuse clients' idle funds.
However, there are cases when the broker need not refund the money to the client's accounts. This is when:
- The client's balance is less than Rs.10,000
- After blocking 2.25 times of the margins levied for an open position held by a client if the balance is in Debit.
What the 2nd point means is -
Assume you have ₹ 1,00,000 in your account and have taken 3 lots of Nifty (Assume margin for one lot of Nifty is ₹ 27,000), then ₹ 81,000 would be blocked from your account leaving you with a balance of ₹ 19,000.
The Exchange allows a broker to block 2.25 times of the margin it levies for the open position held by the client and after blocking such 2.25 times margin if there is any credit, it needs to be reversed.
Going back to the above example, 2.25 times of ₹ 81,000 would be ₹ 1,82,250. Since the funds available in your account is only ₹ 1,00,000 the broker need not make any refund and will mark your account as 'retained'. Once the broker marks your account as retained, he is required to send you a statement explaining the basis for such retention. This explanation is explained to you through the 'Retention Statement'
However after applying the 2.25 rule, if there is any credit standing in the client's account, such fund will have to be reversed to the client's bank account.
The format is as specified by the Regulators. You can refer to Annexure I here.