Brokers target March-end timeline for offering UPI block facility
Mumbai, Dec 29, 2023
Experts said that the facility will offer a competitive edge to brokers leading to larger adoption over time
Investors may have to wait a little longer for the Unified Payments Interface (UPI) based block mechanism in the secondary market, even though the market regulator has set the effective date as January 1, 2024. Several brokerage firms have indicated that they might take a few months to implement it.
Investors will be able to register for this facility only if the stock broker has also opted for the UPI block facility. Initially, the facility is to be made available only for the equity cash segment.
“On January 1, it is going to be a ‘beta version launch’ for the new block facility. The market regulator also wants it to be demand-led from the clients and with the focus on technology, this is a long-term game for market infrastructure development,” said a source.
As per sources, of the top 15 stock brokers defined as qualified stock brokers (QSBs), only Groww and HDFC Securities might implement the block facility for the secondary market from January 1 onwards. Meanwhile, others are aiming to offer the facility to their clients by the end of March, said industry sources.
Industry insiders from two different QSBs stated that the mechanism needs more testing before being made available to their clients. One added that they are not prepared to offer the facility immediately but will look to do so in the coming months.
"We are in the process of complying with the directives of the Securities and Exchange Board of India (Sebi)," said another full-service stock broker, seeking anonymity.
Industry players said that the availability of the block mechanism will now offer a competitive edge over other brokers.
“Even if it is optional, if a few large brokerages offer it, then it will become a feature for everyone to align to. Large brokerages will offer it sooner or later,” said Dhiraj Relli, Managing Director and Chief Executive Officer, HDFC Securities.
Among the other brokers beyond the QSB list, Tejas Khoday, co-founder and CEO of brokerage firm FYERS, said, "It is optional for the brokers but going forward it looks like the mechanism will become compulsory. We need to check the industry's preparedness. Given that top brokers may take 2-3 months to go live, we too will take some time. We are preparing for it.”
Under the Application Supported by Blocked Amount (ASBA) framework, settlement of funds and securities will be done by the clearing corporation without the need for the stock broker to handle the funds. A similar process is followed for the primary market where the amount is blocked in the investor’s account until allocation.
Funds and securities will remain in the bank and demat account of the client respectively but will be blocked in favour of the clearing corporation until the expiry date of the block mandate or debit for obligating the trades done by the investors.
“In time, as awareness about this facility grows amongst stakeholders, we expect this mechanism to become a popular way for retail customers to trade in securities markets,” said the National Stock Exchange (NSE) in a statement on December 28.
This is part of a series of steps taken by the capital market regulator to safeguard clients’ funds and securities from misuse by brokers. The market watchdog had earlier this year restricted brokers from creating bank guarantees using client funds.
“There will be a definite impact on the float income with the ASBA facility. Indian customers will be happy to grab the opportunity. Some dents on those brokerage houses which are relying on the float income. From here onwards, we don’t see significant opportunities for further price cuts on the execution side. We may actually see some more increase in the pricing over a period of time,” added Relli.
Sebi had approved the block mechanism framework in March this year and issued the circular for the same in June.
Emails sent to Zerodha, Groww, Angel One, ICICI Securities, Sharekhan, Kotak Securities, Motilal Oswal, Samco, and IIFL Securities seeking their preparedness for the framework did not elicit any response.
Queries sent to Sebi too remained unanswered until the time of filing.
In December last year, the Reserve Bank of India (RBI) announced the introduction of ‘single block multiple debits’ functionality for UPI to facilitate the ASBA model for the secondary market for retail investors. Sebi chair Madhabi Puri Buch had first announced the new mechanism in September last year, and the board approved it this year.
Pointers
- Beta version launch on January 1 of ASBA for secondary market, mechanism optional at this stage
- Top brokers may provide the facility within 2-3 months
- Investors will be able to register for the facility only if broker opts for the UPI-based block facility
- ASBA-mechanism already used in the primary market
- Funds and securities will remain in the account until trade obligation, blocked in favour of the clearing corporations
[The Business Standard]
