The Securities and Exchange Board of India (SEBI) recently approved a framework for an Application Supported by Blocked Amount (ASBA)-like facility for trading in the secondary market. This new facility is an extension of the ASBA system, which was first introduced by SEBI in 2008 for the primary market.
The ASBA system is an application by an investor that contains an authorization to a Self Certified Syndicate Bank (SCSB) to block the application money for subscribing to an issue. The new ASBA facility for the secondary market will allow brokers to no longer collect margins from clients, and only a block will be placed on the bank account.
Benefits of the ASBA Facility in the Secondary Market
The ASBA facility in the secondary market will bring efficiency to the secondary market ecosystem by allowing the same blocked amount to be used towards margin and settlement obligations. It will result in lower working capital requirements for members. It will also ensure that clients will continue to earn interest on the blocked funds in their savings account until the debit takes place.
Additionally, there will be direct settlement with the Clearing Corporation (CC) without passing through the pool accounts of the intermediaries. This will provide client-level settlement visibility to the CC and help avoid the risk of co-mingling of clients’ funds and securities. It will eliminate the custody risk of client collateral, which is currently retained by the members and not transferred to the CC.
Finally, there will be hassle-free and immediate unblocking of client’s funds and/or return of securities in case of member default.
Other SEBI Measures to Protect Small Investors
SEBI has taken several other steps to protect small investors. It introduced quarterly settlement of funds and transfer of funds from depository participants (DP) to bank accounts on the first Friday of the quarter (April, July, Oct, Jan). A new trade-plus-one (T+1) settlement cycle was also introduced, which means that trade-related settlements will be done within a day, or 24 hours, of the completion of a transaction.
About SEBI
SEBI is a statutory body and a market regulator that controls the securities market in India. Its basic functions are to protect the interests of investors in securities and to promote and regulate the securities market. SEBI is run by a board of members consisting of a chairman and several other whole-time and part-time members. The chairman is nominated by the union government. Two members are from the finance ministry, one member is from Reserve Bank of India, and five other members are also nominated by the Centre. The headquarters of SEBI is in Mumbai, and the regional offices are located in Ahmedabad, Kolkata, Chennai, and Delhi.
Why In News
With the Securities and Exchange Board of India (SEBI) approving a framework for a trading facility similar to Application Supported by Blocked Amount (ASBA) in the secondary market, investors can now benefit from enhanced convenience and security when participating in trades.
MCQs about ASBA Facility for Secondary Market Trading
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What is ASBA?
A. Application Supported by Blocked Amount facility
B. Automated System for Banking Applications
C. Approved Securities and Bonds Association
D. Association of Securities Brokers and Agents
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Which regulatory body has approved the framework for ASBA-like facility for trading in the secondary market?
A. Reserve Bank of India (RBI)
B. Securities and Exchange Board of India (SEBI)
C. National Stock Exchange (NSE)
D. Bombay Stock Exchange (BSE)
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What is the main advantage of the ASBA facility?
A. Amount is debited only after shares are allotted
B. Ability to invest in foreign markets
C. Access to insider information
D. Guaranteed profits
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Which type of investors can use the ASBA facility?
A. Only retail investors
B. Only institutional investors
C. Both retail and institutional investors
D. None of the above
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