SEBI working on new payment system for secondary trades

The Securities and Exchange Board of India is working on a new payment system for the secondary market, which could prevent brokers from accessing their client funds.

It will be similar to the Application Supported by Blocked Amount (ASBA) process that is used for subscribing to initial public offerings (IPOs), where funds move out of an investor’s bank account only after the trade is confirmed.

SEBI Chairperson Madhabi Puri Buch said that the new system would be ready in a few months. “We are now actively engaged in looking at an ASBA-like system for the secondary market. If you are buying shares, the money should never leave the account until the settlement is done,” she said.

However, the proposed system could subjugate the broking industry as several players earn a float on the funds parked. It could even push up the cost of trading — which has plummeted over the years — as brokerages could look for alternative sources of income. The market regulator has already put in place a new system that prevents brokers from accessing client securities.

Buch said that certain principles should be followed in the markets for the sake of more transparency. “If algos claim they can deliver 350 percent return, they must be open for SEBI validation. It cannot be a black box. We are not for or against algo trading as long as there is sufficient transparency and disclosures. Claims that cannot be audited and validated will not be permitted,” she said.