Sebi proposes mandatory UPI block secondary market for larger brokers

The Securities and Exchange Board of India (Sebi) plans to mandate the UPI block mechanism, also known as the ASBA-like facility, in the secondary market for Qualified Stock Brokers (QSBs).

QSBs are brokers with larger client sizes and thus more significance in the market ecosystem. Till now, the facility is mandatory only in the primary market (IPOs) and is currently optional for brokers to provide in the secondary market from January 2024.

In a consultation paper floated on Wednesday, the market regulator said that the mechanism may eventually become a popular method for retail investors to trade in the securities markets, provided that trading members (TMs) are willing to adopt the system.

“Significant progress was made in the said meetings with the support of the stakeholders. Some of the notable developments include the issuance of letters to banks urging them to participate in providing the facility of the UPI block mechanism to clients, the issue of a circular by NPCI dated July 31, 2024, with respect to the enablement of the UPI mandate feature of single block multiple debits, and facilitation by developing certain file formats by clearing corporations (CCs) required by TMs for back-office reconciliation,” said Sebi.

Under the block mechanism, the amount is not deducted from the bank account unless the transaction takes place.

Sebi has also indicated that if the UPI block mechanism is later extended to the derivatives segment, it would result in additional benefits for the clients as well as banks.

“This would result in significant savings for the clients in the form of interest accrual on cash balances and create a steady stream of low-cost current account savings account (CASA) balances for the banks,” noted Sebi.