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Capital market regulator SEBI has introduced a ASBA (Application supported by Blocked Amount)-like process for trading in secondary market based on blocked funds in investor’s bank account, instead of transferring them upfront to the trading member, thereby providing enhanced protection of cash collateral.
The facility will be provided by integrating Reserve Bank of India approved Unified Payments Interface (UPI) mandate service of single-block-and-multiple-debits with the secondary market trading and settlement process and ‘UPI block facility’.
The new facility will come into effect from January 2024.
Proposed framework
In a circular issued on Monday, SEBI said under the proposed framework, funds shall remain in the bank account of the client but will be blocked in favour of the clearing corporation (CC) till the block is released by the CC, or debit of the block towards obligations arising out of the trading activity of the client, whichever is earlier.
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Further, settlement for funds and securities will be done by the CC without the need for handling of client funds and securities by the member, it said.
Availing UPI block
While a UPI block upon creation shall be considered towards collateral, the same shall also be available for settlement purposes. For clients who prefer to block lump-sum amount, their block can be debited multiple times, subject to available balance, for settlement obligations across days.
Availing UPI block facility, to be provided by the stock broker, will be at the option of investors. Since an investor is allowed to have trading accounts across multiple stock brokers, an investor can choose to avail UPI block facility under some brokers and non-UPI based trading under others.
However, once opted for UPI block facility under particular brokers, all cash collaterals shall be provided through UPI block only.
Cash-equivalent collateral, such as bank guarantees and fixed deposits, will not be permitted. Securities collateral to be provided through pledge/re-pledge system and only those securities can be provided which are in the CC’s approved list. Funds pay-in settlement to be done only through UPI block, it said.
Single block limit of ₹5 lakh will apply, even while multiple blocks can co-exist subject to the overall limit applicable in UPI.
Client can request for release of block to trading member through the app and it has to communicated to CC through clearing member. Upon release of the block, the client’s bank shall unfreeze the amount in the account of the client, it said.
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