The Securities and Exchange Board of India (Sebi) is working on a new payment system for the secondary market, which might forestall brokers from accessing their consumer funds.
Photograph: Kunal Patil/PTI Photo
It will probably be on the strains of the Application Supported by Blocked Amount (ASBA) course of used for subscribing to preliminary public choices (IPOs), the place funds transfer out of an investor’s checking account solely after the commerce is confirmed.
Sebi chairperson Madhabi Puri Buch on Wednesday mentioned that regardless of the challenges, the new system could be prepared in a couple of months.
“We at the moment are actively engaged in taking a look at an ASBA-like system for the secondary market.
“If you might be shopping for shares, the cash ought to by no means go away the account till the settlement is completed,” she mentioned on the Global Fintech Fest 2022.
This, coupled with the new T+1 settlement mechanism, would result in environment friendly use of capital and assist additional develop India’s capital markets.
However, the proposed system might upend the broking business as a number of gamers earn a float on the funds parked.
It might even push up the price of buying and selling — which has plummeted through the years — as brokerages might look for different sources of earnings.
The market regulator has already put in place a new system that stops brokers from accessing consumer securities.
While ASBA for the IPO market has been round for greater than a decade, extending it to the secondary market might pose extra advanced challenges — extra so for brokers not backed by banks.
“For bank-led brokerage homes, the shift is not going to be difficult, as blocking of funds has been taking place for greater than 20 years. However, for standalone brokerages, having access to a consumer’s checking account could be tough, as banks is not going to be comfy giving entry to the consumer checking account by the core banking platform.
“Currently, the consumer must switch the quantity to the dealer,” mentioned Prasanth Prabhakaran, MD & CEO, Yes Securities.
Industry gamers mentioned main system overhauls could be wanted to allow a new payment system.
“There will probably be way more transparency within the system, however operationally it will likely be tough, as not like the IPO market the place there’s one-time payment, the secondary market is extra lively.
“There will probably be too many cases of blocking and unblocking cash for the a number of trades a buyer takes in a day.
“Also, even in ASBA, there are points like failure charges and extra time taken for blocking.
“On the optimistic aspect, the whole funds course of will standardise.
“With operational implementation between banks, brokers and different intermediaries, I feel it should take a while to be applied,” mentioned Prakarsh Gagdani, CEO, 5paisa.
Some consultants really feel that the regulator might want to implement the new system in a phased method, making it efficient first within the money market after which in derivatives.
“The margin system will have to be aligned. In F&O (futures and choices), solely the margin is collected.
“With the new system, there could be a necessity to provide a number of directions to the financial institution by the consumer.
“It will develop into a difficult activity for folks taking many intraday trades,” mentioned Kamlesh Shah, president, Association of National Exchanges Members of India (ANMI).
However, the Sebi chairperson is of the view that using know-how can assist surmount them.
“For those that wish to undertake know-how, all hurdles might be resolved.
“There are merely operational points that may be ironed out. In a couple of months, with the assistance of know-how, we are going to get there,” she mentioned.
On regulatory stand on cryptocurrencies, she mentioned Sebi would by no means allow anonymity.
“If you begin your corporation mannequin on the belief of anonymity and if that could be a key promoting proposition, it’s not going to final,” she added.
She additionally mentioned the regulator was supportive of efforts in direction of monetary inclusion, however the enterprise mannequin shouldn’t construct exit obstacles.
Buch expressed considerations over retail algos promising unrealistic returns, and emphasised on transparency and correct disclosures.
“If somebody claims that the algorithm is making excessive returns, they need to have the ability to simulate in an impartial evaluation.
“It can’t be a black field not open to daylight to disinfect it.
“If the declare can’t be audited or validated, then it can’t be permitted,” she mentioned.