Brokers target March-end for secondary mkt ASBA

Investors may have to wait a little longer for Unified Payments Interface (UPI)-based block mechanism in the secondary market even as the market regulator has set the effective launch date as January 1, 2024.

Several brokerage firms said they may take a few months more to implement it.

Investors will be able to register for this facility only if the stock broker has opted for the UPI block facility.

The facility is to be made available only for the equity cash segment in the beginning.

“On January 1, it is going to be a ‘beta version launch’ for the new block facility.

"Market regulator Securities and Exchange Board of India (Sebi) also wants it to be demand-led from the clients.

"With the focus on technology, this is a long-term game for market infra development,” said a source.

According to sources, of the top 15 stock brokers that are qualified stock brokers (QSBs), only Groww and HDFC Securities may implement the block facility for the secondary market from January 1.

Meanwhile, others are aiming to offer the facility to their clients by March-end, said industry sources.

“This Beta launch has been facilitated by Groww as the brokerage app, alongside BHIM, Groww, and YES PAY NEXT as UPI apps.

"Initially, HDFC Bank and ICICI Bank customers will be able to avail this facility. Further, HDFC Bank, HSBC, ICICI Bank, and YES Bank are acting as sponsor banks for the clearing corporation and exchanges,” said a National Payments Corporation of India (NPCI) official on Friday (December 29, 2023).

Other stakeholders, including stockbrokers such as Zerodha, banks like Axis Bank and YES Bank, and UPI-enabled apps like Paytm and PhonePe are in the certification stage.

They will participate in Beta launch soon, added NPCI.

Industry insiders from two QSBs said the mechanism needs to go through more testing before being made available to clients.

One of them said that it is 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 Sebi directives,” said another full-service stock broker.

Industry players said that the availability of the block mechanism will offer a competitive edge over other brokers.

Even if it is optional, if 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 (MD) and chief executive officer (CEO), HDFC Securities.

Among the other brokers, 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 till allocation.

Funds and securities will remain in the bank and demat accounts of the client, respectively.

But they will be blocked in favour of the clearing corporation till 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 among stakeholders, we expect this mechanism to become a popular way for retail customers to trade in the 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 regulator to safeguard clients’ funds and securities from misuse by brokers.

The market watchdog had earlier 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 brokerage houses, which are relying on the float income, may be there.

"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 a circular in June.

Emails sent to Zerodha, Groww, Angel One, ICICI Securities, Sharekhan, Kotak Securities, Motilal Oswal, Samco, and IIFL Securities seeking their preparedness on this did not elicit any response. Queries sent to Sebi also remained unanswered.

In December last year, the Reserve Bank of India (RBI) had announced the introduction of ‘single block multiple debits’ functionality for UPI.

It was 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.