Sebi clears ASBA-like facility for stock trades

MUMBAI: The Sebi board on Wednesday approved ASBA-like facility for secondary market trading where the funds earmarked for trading by an investor will be blocked and released only when there is a demand from the clearing corporation to settle such trades. The regulator's board also gave nod to set up a mechanism under which brokers can alert market abuse and fraud, a Sebi release said.
ASBA (application supported by blocked amount) is an IPO application process under under which the application money by an investor is blocked in that investor's bank account.And once the IPO application is approved, the application money is debited from the investor's account. The investor earns interest on the blocked amount till it's debited. In case the investor doesn't get allotment, the block is released.
A similar process will now be introduced in the secondary market. This facility will be optional for investors as well as stock brokers, a Sebi release said.
The regulator said that there were several benefits for such a facility. Among those, the investor will earn interest on his blocked funds in his savings account till the time amount is debited. It will also facilitate direct settlement with the clearing corporation (CC), without passing through pool accounts of the intermediaries, thereby providing client level settlement visibility to the CC and thus avoiding the risk of co-mingling of clients' funds and securities.
This facility will also eliminate the risk of inadvertently erroneous or fraudulent reporting by intermediaries. This will also eliminate the risk of default and no adverse impact on client pay-out.
"It shall bring efficiency in the secondary market by allowing usage of the same blocked amount towards margin and settlement obligations and thus result in lower working capital requirements," Sebi said.