Yesterday in the SEBI board meeting the board has approved the framework for ASBA (Application Supported by Blocked Amount) like facility being made available to Investors for secondary market trading. It is based on blocking of funds for trading in secondary market through UPI as we use to do it while applying for IPO.
This facility shall be optional for investors as well as stock brokers, for example If the investor wants to use ASBA method for any kind of securities transaction in secondary market he can switch into it or if he wishes to park his money in trading account, he can continue with it.
What is ASBA?
Application Supported by Blocked Amount (ASBA) is a process used to apply for Initial Public Offerings (IPOs) or Follow-on Public Offerings (FPOs) in India. Under this process, investors' application money remains in their bank accounts but is temporarily blocked or reserved until the shares are allotted. Once the shares are allotted, the blocked amount is debited from the investor's account, and the remaining amount is unblocked or released. This ensures that the investor's money remains in their account until the shares are allotted. Now this process will be available for all secondary market transactions
This system is more transparent unbundle method of fee charging, no intermediary is involved. The ASBA blocked money from the investor’s bank account will be directly transferred to clearing corporation. Usually, the investor uses to deposit his capital in the trading account then if he buys any security the money will be transferred from the trading account to clearing, this long process can be eliminated, reduce the risk and it is more transparent.
What is the benefit of using ASBA?
If investor A, wishes to invest Rs.3Cr in any stock, for that firstly he has to deposit 3cr in trading account then place buy order, at the time of buying Investor A wants to buy only for 1cr and for the remaining 2cr he wants to invest after 1week, so till that time balance 2cr will be available only in his trading account generally we wont get any interest if we maintain balance in trading account whereas in savings account we get some amount of interest rate, for example savings account interest rate is 7% per annum and the investor gets RS.3,836 per day if he deposits his 2cr in his savings account, in this case he was holding 2cr in trading account with no interest benefit, instead he deposits the same amount in savings a/c for the time being of 1weeks he would have got Rs.26,850 as interest.
After enabling the ASBA method for trading in the secondary market, this short-term interest rate benefit can be availed by the investors.
This method shall bring efficiency in the secondary market ecosystem by allowing usage of same blocked amount towards margin and settlement obligations and thus shall result in lower working capital requirements for the members.
Who gets affected?
As an investor it is more favourable, but for discount brokers it’s a huge problem this affects the revenue of the brokerage business, because brokers use this trading account money by lending to others investors as a leverage, this internal cash flow is one of the reason for major success of discount brokers. Already discount brokers are making a lot of money by getting Rs.20 a trade, now this would be the single source of income for them.
Under the proposed framework stock brokers will be allowed to either directly settle the brokerage with the UPI clients or opt for CC’s facility to deduct standard rate of brokerage from the UPI block of the clients.
The framework would be implemented in a phased manner to facilitate smooth transition in the market.
(Source: SEBI)
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