SEBI Introduces ASBA Like Trading Facility For Secondary Market-enhancing Investor Protection
To protect investors' money from potential misuse and defaults by stockbrokers, the Securities and Exchange Board of India (SEBI) has introduced a new process for trading in the secondary market. This innovative process enables investors to utilize funds that are blocked in their bank accounts for trading purposes, without the need to transfer them upfront to the trading member. By doing so, investors can have greater control over their funds while participating in the market. The new process, similar to the ASBA (Application Supported by Blocked Amount) facility used in the primary market, ensures that funds are moved only when there is an allotment.
In the newly established framework, the funds will be retained in the client's account but will be secured by blocking them in favor of the clearing corporation (CC) until the block mandate either expires or is released by the CC. This arrangement ensures the protection and integrity of the funds while allowing for efficient trading processes.The CC will handle the settlement of funds and securities, reducing the risks associated with individual members handling client assets.Commencing January 2024, the new facility will be operational, bringing significant advantages to investors.
This process provides added protection for investors' funds, minimizing the risks of misuse and defaults by stockbrokers, and safeguarding their capital. The UPI block created during this process will serve as collateral and can be used for settlement purposes. Investors can choose to block lump sum amounts and can debit the block multiple times based on available balances for settlement obligations spanning multiple days. Initially, the facility will be implemented in the equity cash segment and may be extended to other segments in the future.
It is important to note that this facility is optional for both investors and stockbrokers. Investors with multiple trading accounts across different brokers can choose to utilize the UPI block facility with some brokers while using non-UPI-based trading with others. This flexibility reduces working capital requirements for brokers. The new framework eliminates custody risks associated with client collateral, as it remains with the members and is not transferred to the clearing corporation. Additionally, even in the event of a member's or fellow client's default, client pay-outs will not be affected.
Detailed operational guidelines, including the collection of brokerage, will be issued by the clearing corporation in consultation with relevant stakeholders such as stock exchanges and depositories. This advancement comes as a result of Sebi's endorsement of the proposal in March, following a prior consultation paper on the matter. The approval and consultation process by Sebi has paved the way for the implementation of this new initiative.
In summary, the new process introduced by Sebi provides investors with enhanced protection for their funds while trading in the secondary market. By allowing the use of blocked funds instead of upfront transfers, it reduces the risks of misuse and defaults. This framework offers flexibility for investors and brokers and ensures the safe handling of client assets by the clearing corporation. With the implementation of this new process, investors can trade with greater confidence and security in the Indian stock market.
