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Source: The post is based on an article “Sebi working on new ASBA-like payment system for secondary trades: Buch” published in The Indian Express on 24th September 2022.
Syllabus: GS 3 – Financial Market in India
News: SEBI is working on a new payment system for the secondary market which could prevent brokers from accessing their client funds.
The new payment is system will be on the lines of the Application Supported by Blocked Amount (ASBA) process.
What will be the advantages of the new payment system for secondary market?
Movement of funds: This system will help in the movement of funds from an investor’s bank account only after the confirmation of trade. Therefore, money will never leave the account until the settlement is done.
Settlement mechanism: The new payment system is linked with new T+1 settlement mechanism. This mechanism would lead to efficient use of capital and will also help in further developing India’s capital markets.
Standardization: The new payment system will also lead to standardization of process.
What are the challenges with the proposed payment system?
Broking industry: The proposed system could impact the broking industry because many brokers earn a float on the funds parked.
- It could even push up the cost of trading as brokers might look for alternative sources of income.
Brokers not backed by banks: The system will pose complex challenges for brokers who are not backed by banks.
- It will be difficult for standalone brokerages to get access to a client’s bank account.
However, it will not be challenging for brokers who are backed by bank as blocking of funds has been happening for more than two decades in the banks.
Operational difficulties: There will be more transparency but it will lead to difficult in operations where there is in one-time payment.
- It will also lead to many occasions of blocking and unblocking money for the multiple trades a customer takes in a day.
- There also issues of failure rates and sometimes more time are required for blocking funds.
Intraday traders: It will become a challenging task for people taking many intraday trades because the new system might require the client to give multiple instructions to bank. However, the use of technology can help to solve this issue.
