Unified Payments Interface (UPI) block mechanism

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About Unified Payments Interface (UPI) block mechanism:

It is similar to the Application Supported by Blocked Amount (ASBA) facility that allows trading with blocked amounts.
In the primary market, the facility ensures that money from an investor gets moved only when the allotment is completed.
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.
The facility is currently optional for investors, and not mandatory for Trading Members (TMs) to offer as a service to clients.
Significance: It provides enhanced protection to the client’s funds and securities.

Key facts about Application Supported by Blocked Amount

It was first introduced by SEBI in 2008.
It is a process for making initial public offerings (IPOs) or rights issue subscriptions.
ASBA is a facility provided by banks that allows investors to apply for an IPO or rights issue by blocking the application amount in their bank account instead of transferring the money to the issuer.
Under ASBA, the investor’s application money remains in their bank account, and only a block is created on the funds for the IPO application amount.
This blocked amount remains in the investor’s bank account until the allotment process is completed.
Once the shares are allotted to the investor, the block is released, and only the amount for the allotted shares is deducted from the investor’s account.
In public issues and rights issues, all investors have to mandatorily apply through ASBA.

Q1: What is Unified Payments Interface (UPI)?

The UPI is a digital and real-time payment system developed by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI). It was launched on April 11, 2016. It is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process.

Source: SEBI proposes mandatory UPI block mechanism facility for secondary market trading