Capital markets regulator Sebi on Tuesday proposed to discontinue the current practice of an advance transfer of funds to stockbrokers before secondary market trades are executed.
The move, aimed at safeguarding investors’ money from misuse and default by stock brokers, is similar to Application Supported by Blocked Amount (ASBA)-like facility already available for the primary market which ensures that money from an investor gets moved only when an allotment happens.
In its consultation paper, Sebi stated that the proposed introduction of a blocking of funds facility for trading in secondary markets will prevent misuse of client funds, brokers’ defaults and the consequent risk to investors’ capital.
This would provide client level settlement visibility (both pay-in and pay-out) to clearing corporations (CC) by direct settlement of funds and securities between client or investor and CC.
Under the existing framework, clients’ assets pass through stock broker and clearing member before reaching CC. Similarly, the pay-out released by CC follows a similar cycle of passing through clearing members and stock brokers before reaching the client.
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