Trading Supported by Blocked Amount in Secondary Market
Summary
SEBI introduces a supplementary trading facility allowing investors to block funds in their bank accounts via UPI instead of transferring them upfront. This mechanism aims to enhance investor protection by keeping cash collateral within the client's account until settlement obligations are met. The framework outlines specific eligibility criteria, operational processes for blocking and debiting funds, and settlement procedures involving stock exchanges and clearing corporations. Section 4.7 details the operational procedures for handling cash and derivatives shortages, including fund and security shortfalls. Section 5 mandates that relevant market infrastructure institutions implement system changes by January 1, 2024. Sections 6 through 9 outline the phased rollout of the facility, directive to stakeholders, and the legal authority under which the circular is issued.
Text
SEBI has decided to introduce a supplementary process for trading in secondary market based on blocked funds in investor’s bank account, instead of transferring them upfront to the trading member, thereby providing enhanced protection of cash collateral.
Under the proposed framework, funds shall remain in the account of client but will be blocked in favour of the clearing corporation (‘CC’) till the expiry date of the block mandate or till block is released by the CC, or debit of the block towards obligations arising out of the trading activity of the client, whichever is earlier.
Availing UPI block facility shall be at the option of the investor.
Shall be introduced as a non-mandatory facility to be provided by the stock broker.
All cash collaterals shall be provided through UPI block only.
Cash equivalent collateral such as bank guarantees and fixed deposits shall not be permitted.
Securities collateral to be provided through pledge/re-pledge system and only those securities can be provided which are in the approved list of CC.
Funds pay-in settlement to be done through UPI block only.
Running account settlement shall not be supported. CC shall settle the account of clients using UPI block facility on a daily basis, i.e., any pay-out due to the client shall be paid out to the client on the settlement day.
Single block limit of Rs. 5 lakhs shall apply [currently applicable for UPI based securities market transaction]. However, multiple blocks can co-exist subject to the overall limit applicable in UPI.
All investors who are permitted to use RBI’s UPI facility, and meeting the criteria defined by CCs, shall be eligible.
The stock brokers providing the facility shall notify the details of investors desirous of availing the service to the stock exchange. The stock exchange shall validate that bank and demat account maintained in the Unique Client code (‘UCC’) systems and used for block creation and settlement.
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Source: SecMarx — Trading Supported by Blocked Amount in Secondary Market. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.