SEBI Introduces ASBA-Like UPI Mandate Service For Secondary Markets

SUMMARY

The new facility will allow investors to trade in secondary market based on blocked funds in their bank accounts, rather than transferring the funds upfront to the trading member

Such a facility is already available in the primary market, or initial public offerings (IPOs), in the form of Application Supported by Blocked Amount (ASBA)

The deployment of UPI will offer an additional layer of security and safeguard investor assets from misuse and other capital risks

In an attempt to prevent defaults by trading and clearing members, the Securities and Exchange Board of India (SEBI) on Monday (June 26) introduced a facility to block funds in investors’ bank accounts for secondary market trading, rather than transferring the funds upfront to the trading member.

In a circular, the market regulator said the facility would be provided by integrating the Unified Payments Interface (UPI) mandate service of single block and multiple debits with the secondary market trading.

Such a facility is already available in the primary market, or initial public offerings (IPOs), in the form of Application Supported by Blocked Amount (ASBA).

The new facility will become active on January 1, 2024.

The move is expected to give a further boost to use of UPI by retail investors. The deployment of UPI will offer an additional layer of security and safeguard investor assets from misuse and other capital risks.

The facility will also enable stakeholders to reign in brokers’ default, help ring fence the system and offer a convenient way of payments.

SEBI also said that the facility will be optional for investors, adding that all cash collaterals will be provided only through UPI block.

The market regulator also highlighted a slew of mandates that need to be followed for availing the service:

Cash equivalent collateral such as bank guarantees and fixed deposits shall not be permitted
Securities collateral (mentioned in the approved list of clearing corporation) shall have to be provided through pledge/re-pledge system
Funds pay-in settlement shall only be done via UPI block

Under the new initiative, SEBI has set a single block threshold limit of INR 5 Lakh, as is the norm currently for UPI-based securities market transactions. The regulator further added that users can create multiple blocks subject to the overall limit applicable in UPI.

This comes a few months after SEBI issued a consultation paper on the matter. In March, it also got the nod of its board for the proposal.