Sebi asks qualified stock brokers to offer UPI mechanism from Feb 1

The UPI-based block mechanism provides enhanced security by ensuring transactions from the bank account

In a bid to promote the UPI-based block mechanism in the secondary market, the Securities and Exchange Board of India (Sebi) on Monday directed qualified stock brokers (QSBs) to offer either the facility of trading supported by block amount in the cash segment or the 3-in-1 trading account facility to their clients.

 

The block mechanism for the secondary market has been optional since January 2024. As a result, stock brokers were not actively promoting it to their customers.

 

The new mandate for QSBs will take effect from February 1, 2025.

 

QSBs are larger brokers considered systemically important due to the number of clients and volumes generated through them.

 

At present, investors have to transfer the amount to stock brokers upfront, whereas, under the block mechanism, the amount is merely blocked in the bank account. Thus, the block mechanism is regarded as providing enhanced protection for clients.

 

Furthermore, the UPI-based block mechanism is widely used in the primary market, specifically for applications in initial public offers (IPOs).

 

In an earlier presentation, a Sebi official noted that the block mechanism in the secondary market could bring potential benefits worth Rs 2,800 crore for investors.

 

The 3-in-1 account facility, which integrates the trading account with demat and bank accounts, offers the blocking of funds to the extent of obligation on placing buy orders and the blocking of securities in the demat account upon the placement of sell orders.

 

Some brokers already offer the 3-in-1 account facility.

 

Sebi has increased measures to limit the access and involvement of stock brokers in clients' funds and securities following cases of misuse, such as the Karvy case.