- Shareholders’ business funds will be safe.
- SEBI proposes a facility to block funds.
- Provisions to prevent the misuse of investors’ money by stock brokers.
SEBI’s New Proposal for Investor Protection
Shareholders – Good news is on the way for stock market investors. The Securities and Exchange Board of India (SEBI) on Tuesday proposed the ability to block funds for stock market trading.
This move will eliminate the need for investors to send their money to stock brokers and help prevent the misuse of investors’ funds by stock brokers.
How the Fund Blocking Mechanism Works
SEBI stated in a consultation paper that allowing investors to block shares or funds for trading on the stock exchanges would let them trade using funds held directly in their bank accounts.
This would prevent the misuse of clients’ capital by stock brokers and reduce the risks associated with their money.
Funds Will Remain in the Shareholder’s Account
Under this mechanism, funds are deducted only after share allotment under an IPO.
SEBI has invited public comments on this proposal until February 16.
Under the proposed model:
- Funds will remain in the client’s bank account.
- They will be blocked by the clearing corporation.
- The amount stays blocked until the stipulated block period ends or the corporation releases it.
- The clearing corporation can only withdraw the blocked amount when required.
Direct Pay-In and Pay-Out Services
According to the report, SEBI stated that the fund block facility will allow clearing corporations to provide both pay-in and pay-out services directly at the client level.
This will enable:
- Direct settlement of funds between clients and the clearing corporation.
- Transparency in transactions.
- Elimination of middlemen, reducing misuse risks.
Under the current system, client funds first reach the clearing corporation via stockbrokers and clearing members.
Similarly, when clearing corporate issue settlements, the funds go through multiple intermediaries before reaching investors.
With this new system, SEBI aims to streamline settlements and ensure investor safety.
Summary Table: SEBI Fund Blocking Proposal
| Aspect | Current System | Proposed System |
|---|---|---|
| Fund Transfer | Through brokers and clearing members | Directly from the investor’s bank account |
| Fund Control | Broker handles funds | Clearing the corporation’s blocked funds |
| Risk of Misuse | High – handled by intermediaries | Minimal – funds remain in the investor’s account |
| Settlement Type | Indirect via broker | Direct pay-in/pay-out between investor and corporation |
| Implementation Status | In the discussion phase | Public comments invited until February 16 |
Disclaimer
We do not endorse the information or investment advice provided on cryptoinvestips.com; these are the personal views and opinions of experts. Please consult a stock market expert before making any investment decisions.
FAQs
1. What is SEBI’s new proposal about?
SEBI has proposed a system allowing investors to block funds in their bank accounts for stock trading instead of transferring money to brokers.
2. How does this help investors?
It ensures safety and transparency by preventing brokers from misusing investors’ money.
3. Will the funds remain accessible to investors?
Yes. The funds remain in the investor’s bank account but are blocked temporarily until a trade or IPO allocation is completed.
Final Thoughts
SEBI’s proposal marks a major step forward in protecting investor funds. By enabling direct fund blocking and settlements, it eliminates broker misuse and strengthens trust in the stock market ecosystem. This mechanism will improve transparency, efficiency, and investor confidence in India’s financial markets.
