ASBA-like facility in secondary market a 'business risk', says Zerodha

In an earlier article, Moneycontrol had pointed out that the introduction of this facility will be the trickiest bouncer yet Sebi has thrown at brokers.

The Application Supported by Block Amount (ASBA) like mechanism using the UPI mandate for buying stocks has been cited as a business risk, in Zerodha’s blog post marking its 13 years in the industry. On March 29, the Securities and Exchange Board of India (SEBI) gave its nod for the ASBA facility for the secondary market.

"At this stage, it will be optional for brokers and investors to offer and avail of this," SEBI chairperson Madhabi Puri Buch said, at the press meet after the market regulator’s board meeting. Zerodha's blog post said that the facility will need to be made available from January 2024.

Also read: SEBI chief: ASBA-like facility for secondary markets will be optional for brokers and investors

As of now, the ASBA facility is used for subscribing to initial public offers (IPOs) with the investor’s money blocked in their bank account, earning interest, until the shares are allotted to the investor. A facility similar to this is what is being rolled out for the secondary markets.

The regulatory intent behind this facility seems to give added safeguard to retail investors’s funds parked with stock brokers and clearing members by mandating daily upstreaming of all investor funds from stock brokers and clearing members to Clearing Corporations (CCs).

ASBA challenges

Zerodha’s post claims that this ASBA-like facility will be a business risk because of the technical requirements that will come with it and the cash-flow challenges it will pose.

The post stated, “While this is an optional feature for customers who want to use UPI mandates to only buy stocks for delivery, this requires large technical changes in the order path. Any changes to the order path are extremely risky.”

It added, “There is also a business risk with a change in how we collect brokerage, DP charges, penalties, etc. If the funds aren’t lying with the broker and the money moves directly from the customer’s bank account to the clearing corporation, these charges will need to be collected from the clearing corporation (CC) or from the customer separately, which will not be easy.”

Moneycontrol view

In an earlier article, Moneycontrol had pointed out that the introduction of this facility will be the trickiest bouncer yet Sebi has thrown at brokers.

The article said, “At first glance, discount brokers—who just provide a platform to trade and charge low commissions—stand to lose the most. That is because they had been making up for ultra-low or zero broking charges with the interest earned from the short-term funds lying in the accounts of their clients, most of them active traders. Full-service brokers, which besides a broking platform also provide research, and charge higher commission will feel the pinch too, though to a lesser extent. Bank-owned broking firms will be the least affected, as they will still have access to the funds.”