HDFC Bank Leverages UPI for Secondary Market Transactions

In a significant development, HDFC Bank has successfully executed transactions through the National Payments Corporation of India's (NPCI) Unified Payments Interface (UPI) payments app as part of the UPI for secondary market facility. This facility went live on January 1, 2023, marking a major milestone in the Indian financial landscape.

Sebi's Approval and Optional Trading Mechanism

The move follows the approval granted by the Securities and Exchange Board of India (Sebi), the country's capital markets regulator. Sebi has allowed the UPI app developed by NPCI to facilitate trading in the cash segment through a block mechanism. This mechanism is optional and operates on the lines of the Application Supported by Blocked Amount (ASBA) for primary markets. Under this mechanism, investors' funds remain in their savings accounts, with the required funds being blocked instead of upfront transfer to the broker's account for placing trades.

Beta Phase Launch and Limited Customer Access

On December 29, 2022, NPCI announced that the UPI for secondary market facility would go live from January 1, 2023, in the Beta phase for the equity cash segment. This phase involves the support of clearing corporations, stock exchanges, depositories, stockbrokers, banks, and UPI app providers. Initially, the facility will be available only to a limited set of pilot customers, ensuring a controlled and monitored rollout.

Blocking Funds and Direct Payouts

During the pilot stage, investors can block funds in their bank accounts, which will only be debited by the clearing corporations after trade confirmation during the settlement period. This mechanism ensures that investors' funds remain secure and are only utilized for confirmed trades. Additionally, clearing corporations will directly process payouts to these clients on a T+1 basis, streamlining the settlement process.

Participating Banks and Brokerage Firms

The Beta launch of the UPI for secondary market facility is facilitated by brokerage firm Groww, along with BHIM and Yes Pay Next as the UPI apps. Initially, HDFC Bank and ICICI Bank customers will be able to avail of this facility. HDFC Bank, HSBC, ICICI Bank, and YES Bank are acting as sponsor banks for the clearing corporation and exchanges.

Other stakeholders, including stockbrokers such as Zerodha, Axis Bank, and YES Bank, and UPI-enabled apps like Paytm and PhonePe, are currently in the certification stage and are expected to participate in the Beta launch soon. This expanded participation will further enhance the accessibility and convenience of the UPI for secondary market facility.

The introduction of the UPI for secondary market facility marks a significant step forward in India's financial infrastructure. By leveraging the widely adopted UPI platform, investors can now seamlessly trade in the secondary market with enhanced security, convenience, and efficiency. This initiative is expected to revolutionize the trading experience and attract a broader range of investors to the Indian capital markets.