Sebi Suggests Separating Brokers' And Investors' Money

The Securities and Exchange Board of India (Sebi) has proposed to introduce a blocking of funds facility for trading in secondary markets, with the intent to safeguard investors' money from misuse and default by stock brokers.

This move will be similar to the Application Supported by Blocked Amount (ASBA)--it ensures that the investors' money only gets moved when an allotment happens. The regulator is welcoming public comments till 16 February.

SEBI stated that the facility will allow investors to trade in secondary markets directly without the involvement of a stock broker. Also, it will lead to providing direct settlements of funds and securities between investors or clearing corporations (CC) for both pay-in and pay-out.

As per the current guidelines, investors' assets have to go through stock broker and clearing member before reaching CC, similarly, the released pay-out by CC passes through clearing members and stock brokers before reaching the client. Although CC mentions the final settlement instructions, the stock broker is the one who settles obligations with clients. 

According to SEBI's proposed model, funds will stay in the account of investor but will be blocked in favour of CC till the expiry date of the block mandate or till the block is released by the CC, whichever is earlier. CC can also debit funds from investors' accounts limited to the amount specified in the block, accordingly.