SEBI unveils ASBA-like facility for trading in secondary market

Capital market regulator SEBI introduced an ASBA-like (Blocked Amount Backed Application) process for trading in the secondary market based on funds withheld in the investor’s bank account, rather than transferred in advance to the trading member, thus providing enhanced protection for cash collateral.

This facility will be provided by integrating the RBI-approved Unified Payments Interface (UPI) authorization service for single and multi-block debit with the secondary market trading and settlement process and the ‘UPI Block Facility’.

The new facility will come into operation from January 2024.

proposed framework

In a circular issued on Monday, SEBI said under the proposed framework, that the funds will remain in the customer’s bank account but will be blocked in favor of the Clearing Corporation (CC) until the block is released by the CC, or debit from blocking liabilities arising from the customer’s trading activity, whichever is earlier. .

Furthermore, the funds and securities will be settled by the Competition Commission without the client’s funds and securities having to be handled by the member.

Take advantage of the UPI block

While a UPI block should be considered upon creation towards collateral, the same should also be available for settlement purposes. For customers who prefer to freeze a lump sum, their blocks can be deducted multiple times, depending on the available balance, for settlement obligations across the days.

Utilizing the UPI block facility, which will be offered by the stock broker, will be at the option of the investors. Since the investor is allowed to have trading accounts across several stock brokers, the investor can choose to take advantage of the UPI-blocking facility under some brokers and non-UPI-based trading under others.

However, once a UPI block facility is selected under certain brokers, all cash collateral must be submitted through UPI block only.

Cash equivalent guarantees, such as bank guarantees and fixed deposits, will not be allowed. Securities collateral is offered through the mortgage/remortgage system and only those securities on the CC approved list can be offered. It said that payments of funds will only be settled through the UPI block.

A single block limit of ₹5 lakh will apply, even while multiple blocks can coexist as per the general limit applied in the UPI.

The client can request the release of the block to the trading member through the app and must inform the CC through the clearing member. She explained that when the ban is lifted, the customer’s bank is required to unfreeze the amount in the customer’s account.