Capital markets regulator Sebi on Tuesday proposed to introduce a blocking of funds facility for trading in secondary markets, a move aimed at safeguarding investors’ money from misuse and default by stock brokers.

This is similar to Application Supported by Blocked Amount (ASBA)-like facility already available for the primary market which ensures that money from an investor gets moved only when an allotment happens.

In its consultation paper, Sebi said the proposed introduction of a blocking of funds facility for trading in secondary markets would allow investors to trade in secondary markets based on blocked funds in one’s bank account, thereby eliminating the need to transfer funds to stock broker.
Also, the facility would provide client level settlement visibility (both pay-in and pay-out) to clearing corporations (CC) by direct settlement of funds and securities between client or investor and CC.

The process safeguards clients’ assets from misuse, brokers’ default and consequent risk to their capital.

Under the existing framework, clients’ assets pass through stock broker and clearing member before reaching CC. Similarly, the pay-out released by CC follows a similar cycle of passing through clearing members and stock brokers before reaching the client.

While CCs provide final settlement instructions to their members each day, it is the stock broker wh