SEBI Mandates QSBs To Offer UPI-Based Mechanism For Secondary Market

SUMMARY

The UPI block facility will allow investors to trade in the secondary market based on blocked funds in their bank accounts, instead of transferring it upfront to the trading member

Alternatively, QSBs have been asked to offer a three-in-one trading account facility

The move will likely give a further boost to use of UPI by retail investors and safeguard their assets from misuse and other capital risks

Markets regulator Securities and Exchange Board of India (SEBI) has mandated qualified stock brokers (QSBs) to offer the facility of trading in the secondary market using the UPI-based block mechanism to their clients, similar to the ASBA facility.

The new rules will come into effect on February 1, 2025. The UPI block facility will allow investors to trade in the secondary market based on blocked funds in their bank accounts, instead of transferring it upfront to the trading member.

Alternatively, QSBs have been asked to offer a three-in-one trading account facility. A 3-in-one trading account is a combination account comprising a savings account, demat account and trading account.

The market regulator said that these facilities are optional for investors. They can also choose to continue with the existing facility of transferring funds to trading members.

The move will likely 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.

It is pertinent to note that Application Supported by Blocked Amount (ASBA)-like facility is already available for the primary market, which ensures that money from an investor gets moved only when an allotment happens.

To be classified as QSBs, trading members (TM) need to meet certain requirements across parameters such as the size and scale of their operations, including the number of active clients, the total assets held by clients with the TM, the end-of-day margin of all clients, and the trading volume of the TM.

However, being designated as a QSB comes with heightened responsibilities and obligations. Further, QSBs are also subjected to enhanced monitoring by Market Infrastructure Institutions.

SEBI first introduced the use of RBI-approved Unified Payments Interface (UPI) with the facility of blocking of funds, as a payment mechanism for retail investor applications submitted through intermediaries for public issues such as IPO back in 2019.