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The Securities and Exchange Board of India (SEBI) has approved a new framework for investors to trade in the secondary market, similar to the Application Supported by Blocked Amount (ASBA) system. The ASBA-like facility is based on blocking of funds for trading in the secondary market through UPI, and is intended to bring efficiency to the secondary market ecosystem.
Under the proposed framework, stock brokers will be able to settle brokerage payments directly with UPI clients or use CC’s facility to have the standard brokerage rate deducted from the UPI block of the clients. The ASBA-like facility will be optional for both investors and stock brokers, and will be implemented in a phased manner to ensure a smooth transition in the market.
SEBI stated that the new framework will result in lower working capital requirements for members by allowing the use of the same blocked amount for margin and settlement obligations. This will eliminate the risk of co-mingling of clients’ funds and securities, and will provide client level settlement visibility to CC.
The benefits of the ASBA-like facility for both stock brokers and investors include the ability for the client to continue earning interest on their blocked funds until the amount is debited, direct settlement with Clearing Corporation (CC) without passing through intermediary pool accounts, independent and reliable identification of ownership of cash collateral available to CCs, elimination of custody risk of client collateral, hassle-free unblocking of funds and return of securities in case of member default, and no adverse impact on client pay-out in the event of member or fellow client default.
This new framework is seen as a positive move from an investor’s perspective, as it will provide retail investors with access to their own funds at any time, thereby reducing the risk of fraud or misuse of funds by brokers or sub-brokers. By eliminating the need for transfer of collateral from defaulting member to another member, the porting of non-defaulting clients to another member will also become easier. Overall, the introduction of the ASBA-like facility is expected to bring efficiency and transparency to the secondary market ecosystem in India.