SEBI Introduces ASBA-Like Facility For Secondary Market Trading

With an aim to safeguard investors' money from misuse and default by stock brokers, SEBI on Monday introduced a supplementary process for trading in the secondary market based on blocked funds in an investor's bank account instead of transferring them upfront to the trading member.

This is similar to the Application Supported by Blocked Amount (ASBA)-like facility already available for the primary market, which ensures that money from an investor gets moved only when an allotment happens.

The new facility will become live by Jan. 1, 2024, the Securities and Exchange Board of India (SEBI) said in a circular.

Under the framework, funds will remain in the account of the client but will be blocked in favour of the Clearing Corporation (CC) till the expiry date of the block mandate or till the block is released by the CC, or until the block is debited towards obligations arising out of the trading activity of the client, whichever is earlier.

Further, settlement for funds and securities will be done by the CC without the need for the member to handle the clients' funds and securities.

The process safeguards clients' assets from misuse, brokers' default, and consequent risk to their capital.

While a UPI block upon creation would be considered collateral, the same would also be available for settlement purposes. For clients who prefer to block lump sum amounts, their block can be debited multiple times, subject to available balance, for settlement obligations across days.

The facility will be provided by integrating the Reserve Bank of India (RBI)-approved Unified Payments Interface (UPI) mandated service of single-block and multiple-debits with the secondary market trading and settlement process called the 'UPI block facility.'

To begin with, the facility will be made available in the equity cash segment. The CCs may extend the facility to additional segments subsequently.

Explaining the features of the new framework, SEBI said that the facility would be optional for investors as well as stock brokers. Since an investor is allowed to have trading accounts across multiple stock brokers, an investor can choose to avail of the UPI block facility under some brokers and non-UPI-based trading under others.

This would result in lower working capital requirements for the members.

The new framework would eliminate the custody risk of client collateral, which is presently retained by the members and not transferred to the clearing corporation.

Moreover, there would not be any adverse impact on client pay-out even in the case of a member's or fellow client's default.

Further, detailed operational guidelines, including the mode of brokerage collection, would be issued by Clearing Corporation in consultation with relevant stakeholders such as stock exchanges and depositories, among others.

This comes after the board of SEBI approved a proposal in this regard in March of this year. Before that, the regulator had issued a consultation paper on the subject.