The Securities and Exchange Board of India (SEBI) has released a circular introducing a supplementary process for trading based on blocked funds in investors' bank accounts instead of transferring them upfront to trading members (also called stockbrokers, these are individuals or entities authorized to trade in the secondary market from their accounts as well of their clients). This process, referred to as the 'UPI block facility,' will be integrated with the Reserve Bank of India (RBI) approved Unified Payments Interface (UPI) mandate service of single-block-and-multiple-debits. The UPI block facility will become available starting January 2024. The facility will only be available for the equity cash segment (trading conducted by big financial organizations) but might be extended to other segments at a later time. This is fairly similar to the Application Supported by Blocked Amount (ASBA) process that is already in place for shares purchased during an initial public offering (IPO) and Follow-on Public Offer (FPO, shares issued by a listed company after its IPO). Under this process, funds used for the purchase of shares aren’t withdrawn from the investor’s account till the purchase is final. Why it matters: Under the new UPI block, funds will remain in the client's account but will be blocked and only accessible to the clearing corporation (CC, an organization associated with an exchange that handles the settlement of stock transactions). The funds aren’t handled directly by the trading member, which, SEBI says, will provide investors protection from the default (misuse of funds or inability to perform…
