QSBs to offer UPI block or 3-in-1 trading account for enhanced investor control: SEBI

SEBI has mandated that Qualified Stock Brokers (QSBs) offer enhanced trading options to protect investor funds. QSBs must now provide either a trading facility supported by a UPI block mechanism, where funds remain in the investor’s bank account until trade settlement, or a '3-in-1' trading account that integrates trading, demat, and bank accounts, as per a circular released by the market regulator on Monday.

These reforms, aimed at bolstering investor security, allow clients to maintain control over their funds while benefiting from streamlined trading. Under the new system, funds and securities are only blocked during order placement and are released if the trade is not executed, ensuring greater flexibility and potential interest earnings for clients.

The recent reforms are built on the market regulator’s new trading mechanism, introduced in January this year, to secure investor funds by keeping them blocked in the investor’s bank account rather than transferring them upfront to trading members (TMs).

SEBI in its circular revealed that its consultations with market players brought into light the need for system upgrades across multiple entities, including clearing corporations, stock exchanges, depositories, and TMs, to enable efficient use of blocked funds.

This led some TMs to offer a “3-in-1” trading account that integrates trading, demat, and bank accounts. Under this account, the final settlement of blocked funds or securities occurs post-market hours, enabling clients to earn interest until settlement.

The latest reforms aim to expand and standardise this system across the market, aligning with SEBI’s goal of providing investors more control and flexibility over their funds.

The new provisions will be implemented from February 1, 2025.

QSBs clients can continue with the existing setup of transferring funds to TMs or switch to one of the new facilities provided by QSBs.

The circular further mandates these entities to make necessary regulatory changes and inform all market participants including QSBs, ensuring smooth integration of the new trading options. The stock exchanges and clearing corporations would be held responsible for updating relevant rules and regulations to implement these reforms. This will require significant system and process updates across exchanges, clearing corporations, and other stakeholders.