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

SEBI chairperson Madhabi Puri Buch

The Securities and Exchange Board of India (SEBI) on March 29 gave its nod for the Application Supported By Blocked Amount (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, while addressing the press after the board meeting of the market regulator.

ASBA procedure is used in applying for initial public offers (IPO) and other primary market issues. Under ASBA, the fund, though blocked, remains in your account earning interest.

The move is expected to enhance safeguarding of funds of retail investors parked with stock brokers and clearing members, and will also mitigate fund-related risk by mandating daily upstreaming of all investor funds from stock brokers and CMs to Clearing Corporations (CCs).

Investor funds in surplus of exchange margin requirements (i.e. unutilized cash collateral)will now be placed by CCs in very low-risk and liquid overnight money market instruments.

The decision could also reduce the float income implicitly enjoyed by brokers and CMs, the risk of fund misuse in the ecosystem should reduce substantially. In addition, investors will retain the flexibility to improve returns on their surplus funds using other duly authorized and suitable financial service providers.

In the proposed framework under the cash collateral allocation, stock brokers shall place the entire clients’ funds with the CM with segment-wise, Unique Client Code (UCC) wise allocation of collateral. The CM would in turn place these funds with the CC, allocated against the concerned client. The client funds placed with CC shall be marked as cash collateral against the respective clients.