SEBI Proposes Direct Trading in Stock Market using Blocked Funds from Investor’s Bank Account

Circular No. SEBI /HO /MRD/MRD-PoD-2/P/CIR/2023/99, Dated: 23.06.2023

SEBI has decided to introduce a process for trading in the secondary market based on blocked funds in an investor’s bank account, instead of transferring them upfront to the trading member. This aims to safeguard investors’ money from misuse and default by the members, thereby providing enhanced protection of cash collateral.

As per the proposed framework, funds shall remain in the account of the client but will be blocked in favour of the clearing corporation (CC) till the expiry date of the block mandate or till the block is released by the CC, or debit of the block towards obligations arising out of the client’s trading activity, whichever is earlier.

Further, the settlement of funds and securities will be done by the CC without the need for handling client funds and securities by the member.

While a UPI block upon creation would be considered towards collateral, the same would also be available for settlement purposes. For the clients who prefer to block lump sum amounts, their block can be debited multiple times, subject to the available balance, for settlement obligations across days.

This facility shall be provided by integrating the Reserve Bank of India (RBI) approved Unified Payments Interface (UPI) mandate service of single-block-and multiple debits with the secondary market trading and settlement process called ‘UPI block facility’.

Initially, this facility will be made available in the equity cash segment. The CCs may extend the facility to additional segments subsequently. The new facility will become live by January 01, 2024. All investors who are permitted to use RBI’s UPI facility and are meeting the criteria defined by CCs shall be eligible.

Thus, the proposed framework aims to streamline the trading process and simplify settlement by eliminating the need for trading members to handle client funds and securities.

Click Here To Read The Full Circular