ASBA like facility for Secondary Market - A Game Changer for Indian Stock Market
As part of Sebi's ongoing efforts to safeguard investors' money and promote secure trading practices, Sebi has taken another important step to protect investors' funds from misuse and broker default. They have introduced a supplementary process for trading in the secondary market, where the funds are blocked in the investor's bank account instead of being transferred upfront to the trading member.
This approach mirrors the Application Supported by Blocked Amount (ASBA) facility in the primary market, which ensures that the investor's money is moved only when an allotment occurs. This facility will be provided by RBI approved UPI mandate service of single-block-and-multiple-debits with the secondary market trading and settlement process and 'UPI block facility'.
According to the new framework, the funds will be blocked in the favor of the Clearing Corporation till the expiry date of the block mandate or till the block is released by the Clearing Corporation, or till the debit of the block towards the client’s trading activities obligations, whichever is earlier. However, during this process, the funds will remain in the client’s account.
As per the SEBI’s circular issued on 23rd June 23 states that the new facility will be live by 1st Jan '24.
The main features of the framework as outlined in the circular include:
- Availing of the UPI block facility shall be at the investor’s discretion.
- It shall be introduced as a non-mandatory facility to be provided by the stock broker.
- Since an investor can hold multiple trading accounts under different brokers, he/she can choose to avail of the UPI block facility under some brokers and the non-UPI-based trading facility under others.
- Single block limit of Rs. 5 lakhs shall apply. However, multiple blocks can co-exist subject to the overall limit applicable in UPI.
- All investors that are permitted to use the RBI’s UPI Facility and meet the criteria defined by Clearing Corporations are eligible to avail of this facility.
As a well compliant broker, we wholeheartedly welcome the recent step taken by SEBI. We believe that this development brings more transparency. Under the new framework, funds will remain in the client’s account and you have control over allowing access to only the necessary amount of money required to execute your trades. This enhanced level of control and security empowers traders to make informed decisions about your funds.