SEBI Approves Collateral Facility Under ASBA For Brokers And Investors

In a press conference held on March 29, 2023, after the Securities and Exchange Board of India (SEBI)'s board meeting, the Chairperson Madhabi Puri Buch announced that SEBI has given its approval for the Application Supported By Blocked Amount (ASBA) facility for the secondary market, according to Moneycontrol news report.

"At this stage, it will be optional for brokers and investors to offer and avail of this," Madhabi said. The reason for such a move would is to enhance safeguarding of funds of retail investors parked with stock brokers and clearing members, and would also mitigate fund-related risk by mandating daily upstreaming of all investor funds from stock brokers and CMs to Clearing Corporations (CCs).

As per the report, an investor funds in surplus of exchange margin requirements (i.e. unutilized cash collateral) would be placed by CCs into very low-risk and liquid, overnight money market instruments under the new announcement.

This move would help in reducing the float income tactfully enjoyed by brokers and CMs, and also reduce the misuse of funds in the ecosystem. Additionally it will retain flexibility for investors to earn returns on their surplus funds by using other duly authorized and suitable financial service providers.

According to the proposed framework for cash collateral allocation, the stiock brokers will have to place the entire clients' funds with the CM with segment-wise, Unique Client Code (UCC) wise allocation of collateral. Further CM will put the funds in CC, allocated under the client. In CC, the funds placed will be marked as cash collateral mapped to the respective client.

ASBA procedure is useful while applying for initial public offers (IPO) and other primary market issues. In this the fund is blocked, but remains in the account earning interest.