scorecardresearchSebi mulls ‘fund blocking’ mechanism for the secondary market: Report

Sebi mulls ‘fund blocking’ mechanism for the secondary market: Report

Updated: 08 Aug 2022, 11:03 AM IST
TL;DR.

The markets regulator is discussing with market infrastructure intermediaries the possibility of implementing a system that will result in money effectively leaving an investor’s bank account only after a trade is completed

Once this is implemented, funds from an investor's bank account would not go to the broker but directly flow to settle the trade.

Once this is implemented, funds from an investor's bank account would not go to the broker but directly flow to settle the trade.

The capital markets regulator Securities and Exchange Board of India (Sebi) is contemplating an ambitious plan to alter the payment mechanism in stock market trades, Economic Times reported.

The markets regulator is discussing with market infrastructure intermediaries the possibility of implementing a system that will result in money effectively leaving an investor’s bank account only after a trade is completed, said three people familiar with the development.

This would mean funds from an investor's bank account would not go to the broker but directly flow to settle the trade.

At present, such a system exists in the 'primary' or IPO market. Sebi is exploring bringing the 'fundblocking mechanism' to the secondary stock market. Known as ASBA or Application Supported by Blocked Amount, this method is mandatory for investing in IPOs.

In this method, an investor instructs her bank to block money for an investment. Sebi’s proposal to extend the ASBA process to stock market settlement is aimed at minimising brokers’ handling of clients’ money and quickening the trade settlement process.

The proposal, which is on the drawing board, has been discussed in meetings between Sebi, National Payments Corporation of India (NPCI) and bourses’ clearing corporations, the people mentioned above said.

Working Group Constituted

The regulator is believed to have constituted a working group to iron out the hurdles in its implementation.

Currently, stock brokers coordinate the payments between the clearing corporation and investors in the stock market settlement process. An investor must send the funds for purchasing a stock to the broker, who then transfers it to the clearing corporation.

First Published: 08 Aug 2022, 11:03 AM IST