Application Supported by a Blocked Amount (ASBA)

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    Recently, the Securities and Exchange Board of India (SEBI) approved a framework for an Application Supported by a Blocked Amount (ASBA)-like facility for trading in the secondary market.

    SEBI’s recent decision 

    • It gave its nod to an ASBA-like facility for secondary market trading. 
    • The facility is based on the blocking of funds for trading in the secondary market through UPI (Unified Payments Interface).
      • At present, ASBA is available for the primary market, wherein the initial public offering (IPO) funds only are blocked on application, and are debited only on the allotment.

    About ASBA

    • It was first introduced by SEBI in 2008.
    • It is an application by an investor that contains an authorisation to a Self Certified Syndicate Bank (SCSB) to block in the bank account the application money for subscribing to an issue.
      • An SCSB is a recognised bank capable of providing ASBA services to its customers.
    • The application money of an investor applying through ASBA shall be debited from the bank account only if her application is selected for allotment after the basis of allotment has been finalised. 
    • In public issues and rights issues, all investors have to mandatorily apply through ASBA.

    Benefits 

    • It provides an alternative mode of payment in issues whereby the application money remains in the investor’s account till finalization of basis of allotment in the issue.
    • ASBA process facilitates investors bidding with multiple options, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts.
    • ASBA in secondary market trading will ensure that clients will continue to earn interest on the blocked funds in their savings account till the debit takes place.
    • There will be direct settlement with Clearing Corporation (CC), without passing through the pool accounts of the intermediaries. 
    • Hence, it will provide client-level settlement visibility to CC, and help avoid the risk of co-mingling of clients’ funds and securities.
    • It will eliminate the custody risk of client collateral, which is currently retained by the members, and is not transferred to the CC. 

    Source: TH