This facility is currently optional for investors and is not mandatory for Trading Members (TMs) to offer as a service to their clients.
In the primary market, facilities like ASBA (Application Supported by Blocked Amount) are already available, which ensures that funds from investors are moved only when allocation occurs.
In a consultation paper on Wednesday, SEBI suggested that QSBs must provide transaction facility using UPI blocking mechanism in the cash sector to their clients, individuals and HUFs, with appropriate implementation pathways.
It has also been proposed that instead of mandating an ASBA-like facility, QSBs can offer a “3 in 1 trading account facility”. With a 3 in 1 trading account, customers can keep their funds in their own bank account and earn interest on their cash balance. Sebi further said that while the 3 in 1 facility is available in both cash and derivatives segments and has no value limit, the trading facility using UPI block mechanism is currently available only in the cash segment with some restrictions on the number of blocks allowed in a day. “However, compared to the UPI facility, the 3 in 1 trading account facility offers adequate, albeit lower, customer protection considering that deposits and withdrawals of funds are made via TM,” Sebi added.
The Securities and Exchange Board of India (SEBI) has invited public comments on the proposal till September 12.
Trading members are categorised as Qualified Stock Brokers (QSBs) based on factors such as the size and scale of their operations including number of active clients, total assets held by TM clients, closing margin of all clients and trading volume of TM.
Being designated a QSB carries increased responsibilities and obligations. Additionally, QSBs are subject to increased oversight by market infrastructure authorities.
The regulator introduced the use of the RBI-approved Unified Payments Interface (UPI), with blocking of funds facility, as the payment mechanism for retail investor applications submitted through intermediaries for public offers such as IPOs from January 2019.
The beta version of transactions through the blocking mechanism for the secondary market was launched for individuals and HUFs on January 1, 2024 and was applicable only to the cash segment.
Currently, this facility is optional for investors and is not mandatory for trading members to offer it as a service to their clients.
Sebi expects that if TMs are willing to adopt the system, this mechanism could eventually become a popular way for retail investors such as individuals and HUFs to transact in the securities market.
“Customers who choose to use the UPI block mechanism for secondary market transactions will primarily benefit from interest earned on the balances they hold in their bank accounts, as under the UPI block mechanism, these funds remain in their accounts rather than being transferred to TM,” Sebi said.
