Stock Brokers to adopt UPI-based fund blocking

In a big push toward making it more investor-friendly and convenient, QSBs would be mandated from 1 February 2025 onwards to provide a UPI-based fund blocking mechanism, or three-in-one trading account facility. One would like this to make the investor feel empowered since it would bring security and transparency into the process of trading.

The new measures were cleared by the Sebi on Monday. Under the UPI block mechanism, clients will be allowed to trade in the secondary market using blocked funds from their bank accounts, quite similar to the ASBA facility now used for IPOs. This will enable investors to secure their funds without ceasing trading activities. An alternative to this is a three-in-one trading account that integrates a savings account, demat account, and trading account into a single, simple, and integrated product. This, therefore, means that the funds in the bank account are kept while cash balance interests are earned, resulting in more efficiency and a better experience for the clients.

"This will empower investors and benefit them more with strong security and better transparency, ease in payments, including a smooth, convenient, and transparent payment process," said Rahul Jain, CFO at NTT DATA Payment Services India. "This will further help them to manage their funds better," he added, referring to the increasing use of UPI payments. Clients would be given a choice to either stick with the existing facility of transferring funds to trading members or to choose one among the new facilities. QSBs will be categorized based on certain criteria such as the number of active clients, total assets, end-of-day margins, and trading volumes at the end.

These options were introduced after an earlier implementation of UPI as a payment mechanism for the applications of retail investors submitted by intermediaries to public issues since January 2019. A beta version of the trading block mechanism for secondary markets was introduced on January 1, 2024, and so far, this facility is available only in the cash segment. Though the UPI-based fund blocking and three-in-one account facilities shall become compulsory for QSBs from February 2025, this system remains optional for investors and trading members till that time. The changes may contribute to enhanced investor confidence and participation in markets and a more vibrant trading environment.