SEBI moots ASBA-like payment system for secondary market stock trade

Source: The post is based on the article “SEBI moots ASBA-like payment system for secondary market stock trade” published in Business Standard on 17th January 2023.

What is the News?

Securities and Exchange Board of India(SEBI) has given details of a proposed framework for shifting to a new payments system for secondary market trades. 

The move is primarily aimed at safeguarding investors from potential misuse of their funds by brokers.

What is the present payment system for secondary market trades?

Currently, brokers coordinate the payments between the clearing corporation and investors in the stock market settlement process. 

An investor must send the funds for purchasing shares to the broker, who then transfers it to the clearing corporation through a clearing member. 

This system has the risk that a client’s collateral retained with a stockbroker or clearing member can be misused. Similarly, the pay-out due to the client can also be at risk in case the stockbroker and/or fellow client(s) defaults.

What is the new proposed system for secondary market trades?

Under the proposed system, client funds would remain blocked in his/her account and would be directly transferred to the clearing corporation. 

A similar system is implemented for the primary market and is popularly known as ASBA (application supported by blocked amount). 

This system would safeguard the market from the risks emanating from default by brokers.