New Delhi: Markets regulator SEBI may introduce UPI-based block payments for secondary market trading in a move that is expected to improve investor protection and fund management. UPI block mechanism is currently used in IPO transactions to ensure fairness and transparency in market transactions especially for retail investors.
What is UPI block mechanism?
UPI block mechanism is a facility that allows investors to keep certain funds aside in their bank account to trade in stocks. This gives them the flexibility to invest according to their liquidity instead of having to transfer funds to a brokerage in advance.
Currently, this mechanism has been deployed by SEBI for IPO-related payments. UPI block payments for IPOs were rolled out in 2019. While this facility is available for brokers and investors in the secondary market as well, it is only optional. SEBI is considering a move to make UPI block mechanism mandatory for qualified sock brokers who serve a large clientele. The beta launch of UPI block mechanism for secondary markets took place at the start of 2024, CNBCTV18 reported.
How does UPI block mechanism ensure security?
The UPI block mechanism ensures that the money remains earmarked in the investor’s personal account for the respective transaction. This eliminates the need for the investor’s money to be put in the broker’s account, thus preventing any risk of misappropriation of funds. Even as the funds remain blocked in the investor’s account, they continue to earn interest.
The UPI block mechanism ensures that while the brokerage may be an intermediary, the funds are directly credited from the investor’s account, without the brokerage having any role in the money changing hands.
Brokerages will have to make the necessary changes in their systems to ensure compliance with UPI block mechanism if SEBI makes it mandatory. If brokerages embrace this payment mechanism, the headache of payments not going through will not be theirs. Moreover, it will make their offerings attractive for new-age investors.
When will SEBI implement this scheme?
To be sure, SEBI has only invited comments from members of the public on the proposal to introduce the UPI block mechanism in secondary markets. All stakeholders have been invited to provide their views on the matter.
SEBI is keen on the rollout of UPI block mechanism for secondary market transactions. Know what are its advantages for retail investors. Markets Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
