The SEBI chief did not provide a timeline or framework for the likely implementation of the new payment infrastructure.
The Securities and Exchange Board of India (SEBI) is considering development of new payment infrastructure for the secondary stock market on the lines of the infrastructure for application in an initial public offering.
Currently, non-retail investors are required to apply for an IPO via Application Supported by Blocked Amount (ASBA) system under which the bank is given the authorisation to block the amount used for application of an IPO without debiting the sum.
The amount is debited from the bank account of the investor only when her application for the IPO has been accepted. Under this payment system, large investors are able to still earn interest on the blocked amount in their bank account, therefore, reducing their opportunity cost when applying for an IPO.
“We are actively engaged in creating an ASBA-like system for the secondary market,” SEBI chairperson Madhabi Puri Buch said at an industry event in Mumbai on September 21.
The move will likely have a mechanism similar to the IPO market, which will allow investors to earn interest on the blocked amount on their bank account for any purchase made by them in the stock market till the time the transaction is settled.
Currently, the purchase and sale of stocks in the secondary market are settled a day after the date of transaction with the amount of the transaction debited from the investor’s bank account.
“If you are buying the shares and it needs to be settled, money should not move your account till the settlement is complete,” Buch said.
The SEBI chief did not explain the timeline or the framework for the likely implementation of the new payment infrastructure. However, market participants suggested that such a system will further ease the process of for investors to participate in the Indian equity market and improve the experience of retail investors.