Application Supported by a Blocked Amount (ASBA)

In news– SEBI has recently approved a framework for Application Supported by Blocked Amount (ASBA)-like facility for trading in the secondary market.

About ASBA-

With this approval, stock brokers will be able to directly settle brokerage payments with UPI clients under the proposed framework, or they can choose to use CC’s facility to have the standard rate of brokerage deducted from the UPI block of the clients.
According to SEBI, the ASBA-like facility shall be optional for investors as well as stock brokers.
The facility is based on blocking of funds for trading in secondary market through UPI.
Further, it shall bring efficiency in the secondary market ecosystem by allowing usage of same blocked amount towards margin and settlement obligations and thus shall result in lower working capital requirements for the members.
The framework would be implemented in a phased manner to facilitate smooth transition in the market, according to SEBI.

Benefits of Application Supported by Blocked Amount (ASBA) facility-

Client continues to earn interest on his blocked funds in his savings account till the time amount is debited.
Direct settlement with Clearing Corporation (CC), without passing through pool accounts of the intermediaries, thereby providing client level settlement visibility to CC and thus avoiding the risk of co-mingling of clients’ funds and securities.
Independent and reliable identification of ownership of cash collateral available to CCs without the need to rely on reporting/ allocation by members (Trading Member / Clearing Member), thereby eliminating risk of inadvertently erroneous or fraudulent reporting by intermediaries.
Elimination of custody risk of client collateral which is presently retained by the members and not transferred to CC.
Hassle-free and immediate unblocking of client’s funds and/or return/ release of securities in case of member default.
No adverse impact on client pay-out even in case of member/ fellow client default.
In case of member default, ease of porting of non-defaulting client to another member (as there will be no need for transfer of collateral from defaulting member to another member).