SEBI's New Offering: ASBA-like Facility for Seamless Secondary Market Trading

India's capital market regulator, SEBI, has implemented a process similar to ASBA for trading in the secondary market. This new system allows investors to block funds in their bank accounts instead of transferring them upfront to the trading member, providing enhanced protection for their cash collateral.

The facility will be enabled through the integration of the Reserve Bank of India-approved Unified Payments Interface (UPI) mandate service with the secondary market trading and settlement process, known as the 'UPI block facility.'

Operational from January 1, 2024, as per SEBI's circular, this framework ensures that funds remain in the client's account but are blocked in favour of the clearing corporation (CC) until the block mandate expires or is released by the CC. It can also be debited for trading-related obligations, whichever occurs first. The CC will handle the settlement of funds and securities, eliminating the need for trading members to handle clients' assets.

UPI Block Facility For Investors

Investors can opt for the UPI block facility provided by their stockbroker. The blocked amount can be debited multiple times, subject to the available balance, for settlement obligations across different trading days. Investors with multiple trading accounts across brokers can choose to avail of the UPI block facility with some brokers and opt for non-UPI-based trading with others. However, once an investor opts for the UPI block facility with a particular broker, all cash collaterals must be provided through UPI block only.

It's important to note that cash-equivalent collateral, such as bank guarantees and fixed deposits, will not be permitted. Only securities approved by the CC can be provided as collateral through the pledge/re-pledge system. The settlement of funds pay-in will exclusively be done through the UPI block. A single block limit of Rs. 5 lakhs will apply, while multiple blocks can co-exist within the overall UPI limit.

Clients can request the release of a block to the trading member through the app, which will then be communicated to the CC through the clearing member. Upon release of the block, the client's bank will unfreeze the amount in their account.