SEBI Plans ASBA-Like Payment Process To Trade In Shares

India's market regulator plans to roll out the process of blocking funds in bank accounts for trading on stock exchanges to help ease next-day settlement.

Application Supported by Blocked Amount, or ASBA, is used in initial public offerings. An investor applying for shares blocks the amount in a bank account until securities are allotted. Only the amount equivalent to the value of shares gets debited.

"We are looking at ASBA [like process] for the secondary market. As we move to T+1, the money will be subsequently taken from your account," Madhabi Puri Buch, chairperson at the Securities and Exchange Board of India, said at the Global Fintech Summit in Mumbai on Wednesday. "We believe we will overcome all the challenges with the help of technology to bring an ASBA-like service to the secondary market in the next few months."

ASBA makes trading easier and also reduces the chances of default.

SEBI has already laid down the timeline to complete T+1 settlement by early 2023. Rolling out the 'trade supported by blocked amount' process in the secondary market will require approval from the SEBI board, which meets on Sept. 30.

The regulator had tweaked the guidelines for ASBA after it was found certain sections of the market used it to inflate IPO demand.

After Life Insurance Corporation of India went public, SEBI made it mandatory to process ASBA applications only after the money is blocked in the accounts, instead of an application being processed and money coming in only in the next 24 hours at the discretion of the investor, who gets up to a day to decide based on demand for the IPO.

The new regulation is applicable to all categories of investors and modes through which the applications are processed on or after Sept. 1.

With the system already in place, the transition to 'trade supported by blocked account' is expected to be just a matter of will and "we have the will to bring in this change", said Buch.