Sebi’s ASBA Facility: Empowering Indian Investors in the Secondary Market: The Securities and Exchange Board of India (Sebi), India’s principal securities market regulator, has traditionally prioritised empowering investors and supporting fair practises in the country’s securities market. The Application Supported by Blocked Amount (ASBA) tool for secondary market trading is one of its most recent efforts that has received a lot of attention. ASBA is a payment mechanism that allows investors to block their funds in their savings accounts instead of transferring the money to the broker’s account during IPO subscriptions. This ensures the safety of investor funds and streamlines the process of applying for shares in an IPO, with a reduction in the time taken for refunds and providing greater liquidity to investors.
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Real-time Settlement: How ASBA-like Facility Can Change Indian Secondary Market Trading
The ASBA facility can also be applied to secondary market trading, which could result in a real-time settlement process. While placing an order, investors can use this strategy to block funds in their accounts. The money will be blocked once the order is completed until the shares are credited to the demat account. This approach can offer several benefits for investors, such as transparency, enhanced control over their funds, and interest earnings on their blocked funds until the time of the actual debit.
Challenges of Implementing ASBA-like Facility in Indian Secondary Market Trading
However, the implementation of the ASBA-like facility in secondary market trading would require significant changes in the current infrastructure. The current system of brokers and depositories would need to be upgraded to support real-time settlement, and it would require substantial investments in technology and training. The decision is also likely to affect brokers as it may result in a reduction in float earnings or the client’s funds held in the pooled account. To compensate for the loss, brokers may charge higher transaction costs.
Benefits of ASBA-like Facility for Indian Investors
Despite the challenges, the ASBA-like facility can align the Indian secondary market trading with the global best practices, enhancing the credibility of the Indian market. It would deepen and widen the investor base in India’s stock market, which would be a significant achievement in itself. Investors and brokers can opt for the ASBA-like facility for secondary market transactions, and Sebi has approved the broad framework for its implementation, which is expected to lower working capital requirements for the members.
Finally, the ASBA-like facility for secondary market trading has the potential to be a game changer for Indian investors, insuring the protection of their funds and expediting the entire stock trading process. Although its implementation requires significant upgrades in the current infrastructure and changes in the legal framework, the benefits of aligning the Indian market with global best practices cannot be ignored.
