SEBI Proposes Blocking of Funds Facility

January 19, 2023

Securities and Exchange Board of India (SEBI) releases consultation paper proposing to introduce a blocking of funds facility for trading in secondary markets. Aimed at protecting investors’ money from misuse and default by stock brokers. SEBI seeks comments from market participants until February 16 on operational challenges on the proposed concept, associated processes, transaction flow, and risk management.

Proposed Facility

Allows investors to trade in secondary market based on blocked funds in one’s bank account
Eliminates the need to transfer funds to stock broker
Funds remain in the account of client but will be blocked in favour of clearing corporation till expiry date of the block mandate or till block is released by the clearing corporation
Clearing corporation can debit funds from client account, limited to the amount specified in the block

Similar to ASBA Facility

Similar to Application Supported by Blocked Amount (ASBA) facility already available for the primary market
Provides client level settlement visibility to clearing corporations by direct settlement of funds and securities between client or investor and CC

Existing Framework

Under existing framework, clients’ assets pass through stock broker and clearing member before reaching clearing corporation
Pay-out released by clearing corporation follows a similar cycle of passing through clearing members and stock brokers before reaching the client

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