SEBI Proposed Mandatory UPI Block Mechanism in Secondary Market Trading

The Securities and Exchange Board of India (SEBI) has proposed a significant regulatory change that would mandate Qualified Stock Brokers (QSBs) to offer their clients the facility of trading in the secondary market using the UPI-based block mechanism. This mechanism is similar to the Application Supported by Blocked Amount (ASBA) facility currently used in the primary market.

Under the UPI block mechanism, clients can trade in the secondary market based on funds blocked in their bank accounts, eliminating the need to transfer funds upfront to the trading member. This mechanism offers several advantages, including the ability to earn interest on funds held in bank accounts and reduced risk of unauthorised fund transfers.

While the UPI block mechanism is currently optional for investors, SEBI is proposing to make it mandatory for QSBs to offer this service to their clients. This move aims to enhance investor protection and encourage wider adoption of the mechanism in the secondary market.

SEBI has also suggested that QSBs can offer a “3-in-1 trading account facility” as an alternative to making the ASBA-like facility mandatory. In the case of 3-in-1 trading accounts, clients would have their funds in their bank account, earning interest on the cash balances. This option provides a degree of protection to clients, albeit lower than the UPI block mechanism.

The regulator has sought public comments on these proposals until September 12, inviting feedback from stakeholders.

The implementation of the UPI block mechanism in the secondary market is expected to benefit retail investors by providing a more convenient and secure way to trade. By eliminating the need for upfront fund transfers, investors can potentially earn interest on their funds while reducing the risk of unauthorised transactions.

“Clients who choose to use the UPI block mechanism for their secondary market trades will primarily benefit from the interest earned on the balances they maintain in their bank accounts. This is because, with the UPI block mechanism, these funds remain in their account rather than being transferred to the TM,” Sebi said.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.