Markets regulator SEBI on Wednesday proposed that qualified stock brokers (QSBs) mandatorily offer a facility for trading in the secondary market, using the UPI block mechanism, similar to the ASBA facility.
Application Supported by Blocked Amount (ASBA) facility allows trading with blocked amounts and is currently optional for trading members.
It provides enhanced protection to the client’s funds and securities.
In the primary market, the facility ensures that money from an investor gets moved only when the allotment is completed.
Trading members are classified as qualified stock brokers based on factors like the size and scale of their operations, including the number of active clients, the total assets held by clients with the TM, the end-of-day margin of all clients, and the trading volume of the TM.
Being designated as a QSB brings with it enhanced responsibilities and obligations.
Why UPI Block Mechanism?
The regulator had introduced the use of RBI-approved Unified Payments Interface (UPI) with the facility of blocking of funds, as a payment mechanism for retail Investor applications submitted through intermediaries for public issues (IPO) from January 2019.
In January 2024, SEBI introduced a supplementary mechanism for trading in secondary markets by integrating the UPI service of a single block and multiple debits. Under this facility, the client can trade in a secondary market based on blocked funds in his/ her bank account, instead of transferring the funds upfront to the trading member.
SEBI’s New Proposal and Benefits To Investors
SEBI’s new proposal aims to mandate QSBs to adopt certain measures. This initiative comes on the heels of the successful beta launch of the UPI block mechanism in the secondary market in early 2024.
Benefits to investors
SEBI said that given the significant advances in the payment mechanisms, it was felt that the UPI Mandate service of a single block and multiple debits can be integrated with the secondary markets to provide a block mechanism (similar to a pledge-like mechanism in securities).
Through this, investors would be able to block funds in their own bank account for trading in the secondary market, instead of transferring them upfront to the Trading Member (TM). This would in turn provide enhanced protection of cash collateral for the investor, besides allowing the investor to earn interest on such balances.
Enhanced safety viz., (i) hassle-free and immediate return of funds and/ or securities in case of TM default;
(ii) no impact on pay-out even in the case of TM default,
(iii) ease of porting to another TM
- Funds blocked from savings account shall earn interest for the investor
SEBI sought public comments till September 12 on the proposals.
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