NPCI Launches UPI for Secondary Market Trading
NPCI Launches UPI for Secondary Market Trading

NPCI Launches UPI for Secondary Market Trading from January 1, 2024; What It Means For Investors?

NPCI has launched UPI-based blocking of funds for secondary stock market trading from January 1, 2024. This will streamline trading and protect investor funds by eliminating upfront fund transfers to brokers.

The National Payments Corporation of India (NPCI) is set to launch a Unified Payments Interface (UPI) feature for stock trading in the secondary market starting January 1, 2024. This initiative will start in its beta testing phase for the equity cash segment and aims to streamline trading and enhance security and profitability for investors.

UPI-Based Blocking

This UPI-based system involves blocking a specific amount for multiple debit transactions, enabling seamless trading in the stock market. Initially, in the beta phase, the service is available for a limited set of pilot customers before its full-scale launch.

The beta phase currently has the trading app Groww as the brokerage platform and also has UPI apps such as BHIM, Groww, and YES PAY NEXT participating in it, initially available only to HDFC Bank and ICICI Bank customers. Stock broker Zerodha and customer banks like Axis Bank and Yes Bank, and UPI-enabled apps like Paytm and PhonePe are in the certification stage and set to participate in beta launch soon, NPCI said.

UPI is India's leading digital payment method, holds a dominant position in IPO applications, and is now being expanded to secondary market trading.

During this pilot, investors can block funds in their bank accounts, which will only be debited by the Clearing Corporations upon trade confirmation during settlement. Clearing Corporations will directly process payouts to these clients on a T+1 basis streamlining the whole process.

How Does The New System Work?

This mechanism enables investors to block funds for trading in their bank accounts instead of transferring them upfront to trading members. With a single block limit of Rs 5 lakh, this reserved fund will also include collateral for trading, making the collateral amount much safer. Under this mechanism, investors' funds will effectively leave their bank accounts only after trades are completed. So, direct settlements with clearing corporations will safeguard investors' assets from potential misuse by brokers.

National Stock Exchange stated, "The facility is optional and will provide investors with another mechanism to trade in secondary markets, with the money leaving their account only on the instructions of the clearing corporation and only to the extent of their obligations; even the securities settlement for such clients would be done directly by the clearing corporation making this the safest way for a client to trade in secondary markets. In time, as awareness about this facility grows amongst stakeholders, we expect this mechanism to become a popular way for retail customers to trade in securities markets."

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