Investors will benefit from an ASBA-like system, but broking firms’ earnings are expected to decline. The SEBI decision is anticipated to impact broker profitability, as the ancillary income from client funds managed by brokers is expected to decline. During a board meeting on Monday, SEBI approved Qualified Stock Brokers (QSBs) – the largest brokerage firms by client funds and trading volumes – to offer either an ASBA-like facility for secondary markets or a three-in-one trading account to clients. As a result of SEBI mandating that large brokerages implement the ASBA-like mechanism for secondary market transactions, brokerage firms are likely to experience a revenue decline. The approved ASBA-like mechanism, also known as the UPI block mechanism, will allow client funds to remain secured in their bank accounts and will only be transferred when a trade is executed. Currently, clients must deposit their funds with brokers, who earn interest on these pooled funds. However, the SEBI’s decision will benefit investors, as they will also earn interest on their blocked funds held in bank accounts. “The effects of the ASBA-like facility for secondary markets will be seen in the next fiscal year (FY28000), and when it happens, many brokers are likely to go out of business,” stated Tejas Khoday, Co-founder and CEO of FYERS, a modern broking and investment platform. He added that the new ‘true to label’ regulations, which take effect today, are anticipated to reduce discount brokers’ revenues by 15-25 percent. The introduction of the ASBA-like facility may cause an extra revenue loss of 15-25 percent, resulting in a total decline of 30-50 percent in overall revenue,” he stated. The SEBI board has announced that the new system will be implemented starting February 03, 2025. Clients of QSBs can choose to use the new option or stick with the current method of trading by transferring funds to the broker’s account. Experts suggest that the actual effect on brokers’ revenue will depend significantly on the number of clients who opt for the new model. Atul Parakh, CEO of Bigul, noted, “Additionally, brokerage fees might rise as brokers lose additional income from float funds, while service costs increase due to higher technology expenses needed for the ASBA-like facility.” According to Ashish Rathi, whole-time director of HDFC Securities, a customer can make a maximum of three blocks in a day through the UPI block mechanism, with each block limited to Rs 5 lakh. “Therefore, a customer cannot block more than Rs 15 lakh unless they use another account,” he added. A recent National Stock Exchange (NSE) study indicated that implementing ASBA-based trading in secondary markets could provide investors with an annual benefit of Rs 2,800 crore. This estimate is based on the average daily cash collateral received by trading members from clients, which was projected to be Rs 79,000 crore during the October to December 2023 quarter. If these funds stay in investor accounts for the entire year and the annual interest rate is set at 3.5 percent, investors will accumulate savings of Rs 2,800 crore. `); } if (response.
