The Securities and Exchange Board of India, also known as Sebi, is gearing up to make some big changes in how trading happens. Soon, a new UPI block mechanism might be compulsory in the secondary market for Qualified Stock Brokers (QSBs).
What Is the UPI Block Mechanism?
UPI block mechanism is an ASBA-like facility. ASBA stands for Application Supported by Blocked Amount, and it means that the money is not taken out of your bank account until the transaction is actually happening. This is already mandatory when it comes to the primary market, like Initial Public Offerings (IPOs), and from January 2024, brokers can optionally use it for the secondary market.
Why UPI Matters for Qualified Stock Brokers (QSBs)
For QSBs or Qualified Stock Brokers, who manage larger number of clients, adopting this UPI block system could be a game-changer. The Sebi consultation paper suggests that if trading members (TMs) decide to go with this system, it might catch on and become popular among retail investors in the securities markets.
Making Progress of UPI for Stock Brokers
In recent meetings, significant steps have been made with the support of various stakeholders. Sebi noted some major developments to make this new system a reality. First, they’ve sent out letters to banks, encouraging them to support this UPI block mechanism for their clients. Secondly, the National Payments Corporation of India (NPCI) issued a circular on July 31, 2024, to enable a UPI mandate feature for single block but multiple debits. Additionally, clearing corporations are working on certain file formats needed by trading members for back-office reconciliation.
Benefits of UPI for Clients and Banks
One of the main advantages of this mechanism is cost savings. Clients will benefit from accruing interest on their cash balances, which isn’t possible if the money is immediately deducted. Banks, on the other hand, will enjoy a steady stream of low-cost Current Account Savings Account (CASA) balances.
Looking Forward: Potential Extension to Derivatives
Sebi has suggested that if the UPI block mechanism is also applied to the derivatives segment, the benefits could increase. The consultation paper hints at even more savings and efficiencies, which could make the trading experience better for everyone involved.
