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From February 1, qualified stockbrokers will either have to offer their clients the opportunity to trade in the secondary market using the UPI-based block mechanism, similar to ASBA, or a three-tier trading account in one, a decision will give power to investors.
Qualified securities brokers (QSBs) must offer one of these two options, in addition to the current mode of trading.
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A three-in-one trading account combines a savings account, a demat account and a trading account into one integrated solution. In this case, customers would have their funds in their bank account, earning interest on the cash balances.
“This initiative will enable investors to benefit from increased security, improved transparency, interest income and ease of making payments at a time when UPI payments are witnessing significant growth,” it said. Rahul Jain, CFO of NTT DATA Payment Services India.
Furthermore, this decision will improve the management of funds and further improve the comfort of investors, by allowing them to create a payment mandate by blocking funds for trading purposes, which will protect their amount against misuse, a- he added.
On Monday, the Sebi Board approved a proposal according to which, in addition to the current mode of trading, QSBs will either provide the facility of trading backed by an amount blocked in the secondary market (cash segment), using the mechanism UPI block (ASBA type facility for secondary market) or 3 in 1 trading account, starting February 1, 2025.
In the UPI blocking mechanism, customers can trade in the secondary market based on the funds blocked in their bank accounts, instead of transferring the funds in advance to the trading member.
QSB customers will have the option to either continue with the existing trading service by transferring funds to trading members, or opt for the new service.
Trading Members (TMs) are classified as QSBs based on factors such as the size and scale of their operations, including the number of active clients, total assets held by clients with the TM, ending margin day of all clients, and the trading volume of the TM.
Being designated as a QSB comes with increased responsibilities and obligations. In addition, QSBs are also subject to enhanced supervision by market infrastructure institutions.
The markets regulator introduced the use of the RBI-approved Unified Payments Interface (UPI) with the facility to block funds as a payment mechanism for retail investor applications submitted through intermediaries for public offerings such as IPO from January 2019.
The beta version of the block trading mechanism for secondary markets was launched on January 1, 2024 for individuals and HUFs, and was made applicable only to the cash segment.
Currently, this facility is optional for investors and is not mandatory for trading members to provide it as a service to customers.
First publication: October 2, 2024 | 5:10 p.m. STI