New trading options for investors: UPI block mechanism and 3-in-1 accounts

Market regulator Sebi on Monday announced a new directive for qualified stock brokers (QSBs), requiring them to offer one of two new trading options to their clients starting from February 1, 2025. This move comes after Sebi's board approved the proposal in late September.

 

What does the directive mean for investors?

Sebi's new directive offers two key options for investors:

 

UPI-based Block Mechanism for Trading

This option will allow investors to trade in the secondary market (cash segment) using the UPI (Unified Payments Interface) block mechanism. Instead of transferring funds upfront to the broker or trading member, investors will only need to "block" the necessary funds in their bank account. These funds will remain in the investor's bank account, but they will be unavailable for other use until the trade is completed. This system aims to reduce the risk of funds being transferred without the investor’s immediate control.

 

 

 Three-in-One Trading Account

The second option involves a three-in-one trading account, which integrates a savings account, demat account, and trading account into a single, unified solution. This system allows investors to keep their funds in a savings account (earning interest), while their demat account holds their securities and the trading account facilitates transactions. With this approach, investors can easily trade securities and benefit from the interest earned on their idle funds.

 

Why is this significant? 

Improved Flexibility and Convenience

Both these options are designed to offer more flexibility to investors. The UPI-based block mechanism ensures that funds are only committed when necessary, reducing the need for upfront payments and the associated risk of idle funds. 

Safer Trading Environment

The UPI-based block mechanism improves security by ensuring that funds are only locked for the specific purpose of the trade, which provides investors with more control over their funds. This method can potentially reduce instances of fraudulent or incorrect fund transfers.

 

Potential for Better Interest Earning

Investors opting for the three-in-one account will benefit from the ability to earn interest on their funds while they remain in their savings account. 

Aimed at Larger Brokers and Active Investors

Sebi's direction specifically targets qualified stock brokers (QSBs), which are typically larger firms with a significant number of active clients, high trading volumes, and large assets under management. 

 

Who is impacted?

Qualified Stock Brokers (QSBs): Brokers who meet specific criteria such as the size of operations, number of active clients, and total assets managed will need to adopt one of the two options.

 

Retail Investors: Investors who trade in the secondary market will now have the option to choose between the two new trading methods, giving them more control over their funds and potentially streamlining their trading experience.

 

Trading Members (TMs): The trading members will play a key role in facilitating these new systems. They must ensure that their systems are updated to offer either the UPI block mechanism or the three-in-one trading account. 

Trading members (TM) are classified as QSBs based on factors like the size and scale of their operations, including the number of active clients, the total assets held by clients with the TM, the end-of-day margin of all clients, and the trading volume of the TM. 

The move, aimed at significant potential benefits to investors, will come into effect from February 1, 2025. 

In the UPI block mechanism, clients can trade in the secondary market based on blocked funds in their bank accounts instead of transferring the funds upfront to the trading member.\