Securities and Exchange Board of India (SEBI) has introduced new guidelines to enhance investor protection in the secondary market by allowing trading supported by blocked funds in the investor’s bank account. This facility, which was launched in January 2024, enables clients to block funds at the time of placing buy orders without transferring them to Trading Members (TMs) upfront. The feature includes integration with demat and bank accounts, blocking funds or securities as necessary, and releasing them if the orders are not executed. SEBI now mandates that Qualified Stock Brokers (QSBs) provide clients with the option to trade using the UPI block mechanism or a 3-in-1 trading account, which integrates trading, bank, and demat accounts. Clients can choose between the new facility or continue with the traditional method of transferring funds to TMs. The provisions will be effective from February 1, 2025, and exchanges and clearing corporations are required to amend their rules accordingly.
Securities and Exchange Board of India
Circular No. SEBI/HO/MRD-PoD2/CIR/P/2024/153 Dated: November 11, 2024
To
All recognised Stock Exchanges
All recognised Clearing Corporations
All recognised Depositories
National Payment Corporation of India
Dear Sir/ Madam,
Sub: Trading supported by Blocked Amount in Secondary Market
1. In its continuing endeavour to provide protection to the investors from the default of the Members [Trading Member (‘TM ‘)/ Clearing Member (‘CM’)], SEBI had vide para 25 of Chapter 1 of Master Circular on Stock Exchanges and Clearing Corporations (‘Master Circular’) dated October 16, 2023, introduced a supplementary process for trading in secondary market based on blocked funds in investors bank account, instead of transferring them upfront to the TMs, thereby, providing enhanced protection to the cash collateral of the investors. The said facility went live from January 01, 2024.
2. As per para 25.4.1.2 of Chapter 1 of the Master Circular, the facility of trading using UPI block mechanism was introduced as a non-mandatory facility to be provided by the stock brokers.
3. Keeping in view the significant potential benefits to investors, public consultation was undertaken and deliberations were also held with market participants with respect to the measures needed to enable widespread adoption of the said facility.
4. Some TMs are already offering the facility of 3-in-1 trading accounts. The salient features of the 3-in-1 trading account primarily include:
4.1. Integration of the trading account with the demat and bank accounts of the client.
4.2. Blocking of funds, to the extent of the obligation, in the bank account of the client on placement of buy orders. In case the buy orders are not executed the funds blocked are released.
4.3. Blocking of securities in the demat account of the client on placement of sell orders. In case the sell orders are not executed, the block on the securities is removed.
4.4. The pay-in (transfer of Funds / securities) blocked at the time of order placement, from the bank / demat account of the client is carried out post market hours and is upstreamed to the Clearing Corporation. The client earns interest on the available funds till the pay-in.
5. Based on the aforesaid deliberations and considering the significant changes required to be made in the systems and processes of the Clearing Corporations, Stock Exchanges, Depositories, NPCI and the TMs, in implementation of the facility of trading supported by blocked amount to trade in the secondary market, the following has been decided:
5.1. In addition to the current mode of trading, the Qualified Stock Brokers (QSBs) shall provide either the facility of trading supported by blocked amount in the secondary market (cash segment) using UPI block mechanism or the 3-in-1 Trading Account facility, to their clients.
5.2. The 3-in-1 trading account facility offered/ to be offered by the TMs shall, at least have the features as specified at para 4 above.
5.3. Clients of the QSBs will have the option, to either continue with the existing facility of trading by transferring funds to TMs or opt for either of the facilities stated at Para 5.1 above, as provided by the QSBs.
6. The provisions of this circular will come into effect from February 01, 2025.
7. The Stock Exchanges and Clearing Corporations are advised to:
7.1. Make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision, as may be necessary/applicable.
7.2. Bring the provisions of this circular to the notice of the market participants (including QSBs) and to disseminate the same on their website.
8. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
9. This circular is available on SEBI website atsebi.gov.in at “Legal →Circulars”.
Yours faithfully,
Vishal Shukla
General Manager
Market Regulation Department
Email: [email protected]
Phone number:022-26449959
