Trading Supported By Blocked Amount (TSBA): New Settlement Framework For Investor Protection

A recent and conceptually significant development in this trajectory is the introduction of “Trading supported by Blocked Amount” (“TSBA”) in the secondary market, implemented through the UPI (Unified Payments Interface) single-block-and-multiple-debits mandate (the “UPI block facility”). SEBI's circular of 23 June 2023, first introduced an optional supplementary process whereby funds remain blocked in the client's bank account in favour of the clearing corporation (“CC”), rather than being transferred upfront to the broker; the facility went live on 1 January 2024 and is anchored in SEBI's investor protection mandate under section 11(1) of the SEBI Act, 1992 and section 10 of the Securities Contracts (Regulation) Act, 1956.

SEBI, by a further circular dated 11 November 2024, required all “Qualified Stock Brokers” (QSBs) i.e. SEBI-designated stock brokers whose systemic importance in the securities market warrants enhanced regulatory oversight and compliance obligations to safeguard market integrity and investor interests, to provide, from 1 February 2025, either the TSBA facility using the UPI block mechanism or an equivalent 3‑in‑1 trading account structure (a 3-in-1 account seamlessly links Savings Bank, Trading, and Demat accounts) to facilitate frictionless stock market investing. The structure automates fund and security transfers without manual intervention, allowing buying and selling securities from a single integrated platform), with blocking of funds and securities in the client's own bank and demat accounts, in addition to the traditional prefunded model. This substantially restructures the location of cash collateral in cash market trades and marks a decisive regulatory move away from broker custody of client funds.

I. Evolution of Investor Protection in Indian Securities Markets

Post-liberalisation market reform has progressively targeted both micro-level investor safeguards and macro-level market integrity. Core infrastructural changes included: dematerialised securities and depository systems; nationwide electronic trading; central counterparty clearing corporations; sophisticated margining; Investor Protection Funds; and a progressive shortening of settlement cycles culminating in T+1 for the equity cash segment.

SEBI's earlier introduction of the Application Supported by Blocked Amount (“ASBA”) mechanism in 2008 for public issues is a critical precursor to TSBA. Through ASBA, application monies are blocked in investors' bank accounts with Self Certified Syndicate Banks (SCSBs) i.e. SEBI-recognised banks authorised to provide ASBA services, enabling investors' application funds to remain blocked in their bank accounts until the securities are allotted or the transaction is completed and debited only upon allotment, pursuant to detailed circulars issued on 30 July 2008 and subsequent refinements extending the facility to additional investor classes and geographies. SEBI later expanded ASBA to rights issues and mandated its use, inter alia, for Qualified Institutional Buyers (QIBs) i.e. SEBI-recognised institutional investors eligible to invest in securities under a regulatory framework applicable to sophisticated and financially capable investors, and non‑institutional investors, with the 2009–2013 circulars emphasizing segregation of client funds and clear demarcated balances for blocked amounts.

Despite these developments, repeated enforcement actions have revealed serious misuse of client funds and securities by intermediaries through improper pooling, unauthorised pledging and failure to segregate proprietary and client assets, prompting SEBI to strengthen segregation requirements and upstreaming of client funds to clearing corporations, as also reflected in later SEBI circulars and enforcement jurisprudence. The TSBA framework must be read as a logical extension of this trajectory: it removes, as far as feasible, the need for client monies to transit through or remain with brokers at all.

II. Understanding the TSBA Framework

SEBI's 23 June 2023 circular describes TSBA (termed “UPI block facility”) as a supplementary process “based on blocked funds in investor's bank account, instead of transferring them upfront to the trading member, thereby providing enhanced protection of cash collateral”. The framework integrates the RBI‑approved UPI “single‑block‑and‑multiple‑debits” mandate service with the secondary market trading and settlement process.

Under this framework:

1. The client creates a UPI block in favour of the CC; funds remain in the client's bank account but are ring‑fenced up to the blocked amount until expiry, release, or debit by the CC towards settlement obligations.

2. The block is treated as collateral and is also available for settlement; for clients preferring to block a lump sum, multiple debits can be triggered against the same block over days, subject to the available balance.

3. Settlement of both funds and securities is performed by the CC without the trading or clearing member handling client funds or securities for TSBA‑based trades.

The circular explicitly provides that availing the facility is optional for investors, and that brokers may offer TSBA alongside traditional prefunding. Collateral and settlement continue to be segment‑wise (e.g. equity cash), but once an investor opts in for TSBA with a particular broker, all cash collateral and pay‑in in that relationship must be routed exclusively through the UPI block mechanism, with cash‑equivalent bank guarantees and fixed deposits disallowed.

The 2024 circular builds on this by recognising that certain trading members already offer 3‑in‑1 accounts in which funds and securities are blocked at the time of order entry, with actual pay‑in occurring post-market hours and interest continuing to accrue on free balances in the client's bank account till pay‑in time. The circular permits QSBs either to offer the pure UPI‑block‑based TSBA facility or a functionally equivalent 3‑in‑1 structure that, at minimum, provides (i) bank and demat account integration; (ii) blocking and automatic release for unexecuted orders; and (iii) direct upstreaming of blocked funds and securities by the CC, with clients retaining interest on available balances till pay‑in.

These circulars are reinforced by a consultation paper on “Blocking of Funds for Trading in Secondary Market” which specifically identifies the objective of “allowing investors to trade in the secondary market based on blocked funds in one's bank account, thereby reducing the risk arising from the transfer of funds to brokers.

III. Regulatory Structure and Legal Basis

TSBA is not a free‑standing statutory regime; it is implemented through circulars issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) and Section 10 of the Securities Contracts (Regulation) Act, 1956, (“SCRA”), which empower SEBI to issue directions to protect investors and regulate stock exchanges and clearing corporations. The 2024 circular further locates TSBA within paragraph 25 of SEBI's Master Circular on Stock Exchanges and Clearing Corporations, thereby integrating it into the broader framework of market infrastructure regulation.

In underlying terms, TSBA builds on and extends the logic of ASBA in primary markets. SEBI's 30 July 2008 and 30 December 2009 ASBA circulars set out a detailed regime whereby SCSBs block application money in investor accounts, upload bid data to exchanges, and debit only the allotted amount following basis‑of‑allotment finalisation, with unallotted amounts unblocked. The operational template of blocking, data flow integration across banks, exchanges and registrars, and deferred debit is now being repurposed in a real‑time, high‑volume secondary market context via UPI infrastructure.

The Regulatory framework is also closely tied to pre‑existing obligations on brokers to segregate client and proprietary funds and to keep client monies in separate bank accounts, as reflected, for example, in BSE Bye‑law 247A, which implements SEBI's 18 November 1993 Guidelines on transactions between clients, and Bye‑law 227(a) granting brokers a lien only over monies and securities of a client “singly or jointly with another or others” in respect of that client's indebtedness. Sebi's shift to TSBA can be seen as a further attempt to limit even legitimate exposure of client funds to broker credit and operational risk by relocating cash collateral to the client's own banking channel.

IV. Investor-Protection Benefits

A. Curtailment of Broker Misuse Risk

Under the traditional secondary‑market model, client funds transferred to brokers could be commingled, used for the broker's own proprietary positions, or diverted in breach of segregation norms, as recognised in SEBI's periodic circulars addressing complaints of misuse of client funds and unauthorised inter‑client transfers.

Judicial decisions have highlighted the importance of strict adherence to these segregation principles. In AC Chokshi Share Broker Pvt Ltd v. Jatin Pratap Desai [2025] 2 S.C.R. 1545, the Supreme Court, analysing BSE Bye‑law 247A and SEBI's 1993 guidelines, reiterated that brokers must keep client money in separate accounts and may only transfer it in narrowly defined circumstances, such as towards the client's own indebtedness; the Court upheld account adjustments only because the husband was held jointly and severally liable for his wife's debit balance under an oral understanding, making the transfer compliant with the Bye‑laws.

TSBA significantly shrinks the factual space within which such misuse can occur: client funds do not leave the client's bank account until the CC directly debits the block for settlement, and brokers do not receive, hold, or onward transfer client monies at all in relation to TSBA-based trades.

B. Strengthened Asset Segregation and Insolvency Resilience

Because TSBA leaves legal title to the funds with the client until settlement, the need to trace client monies through a broker's banking relationships in the event of broker default or insolvency is reduced. The SEBI circular explicitly states that the CC will provide pay‑out of funds and securities directly to the client's bank and depository accounts for TSBA clients, bypassing broker accounts. This materially improves the prospects of clients in a failure scenario, aligning practice more closely with the segregation and trust‑like obligations recognised in SEBI's enforcement and in judicial treatment of directors' duties and market integrity.

In N. Narayanan v. Adjudicating Officer, SEBI, [2013] 6 S.C.R. 391, the Supreme Court underscored that “disclosure and transparency are the two pillars on which market integrity rests” and that SEBI must “deal sternly with companies and their Directors indulging in manipulative and deceptive devices” to protect investors and safeguard market integrity. While that case concerned fabricated financial statements rather than client‑fund misuse, the Court's emphasis on structural safeguards against “market abuse” supports SEBI's move to engineer settlement infrastructure that minimises reliance on broker probity in the custody of client assets.

C. Enhanced Investor Confidence and Market Participation

SEBI's investor‑education materials emphasise that a modern securities market requires, in addition to trading and demat accounts, a reliable funds‑transfer mechanism between the investor's bank and the market infrastructure UPI‑based TSBA, by allowing investors to retain control over their bank balances until trade settlement, directly addresses retail apprehensions about broker defaults and fund misappropriation. The SEBI 2024 circular explicitly notes the “significant potential benefits to investors” and cites public consultation and market participant deliberation as the basis for making TSBA-type facilities effectively mandatory for QSBs.

D. Lower Operational and Reconciliation Risk

The SEBI 2023 circular's annexed scenarios illustrate that, under TSBA, prefunding is replaced by a simple block and direct CC debit for net obligations (inclusive of STT and stamp duty), with securities pay‑out credited directly to the client's depository account by the CC. This reduces multi-leg cash flows and the need for complex reconciliations among brokers, clearing members, and CCs, thereby lowering operational risk and disputes over delayed or failed pay-ins and pay-outs.

V. Legal and Structural Implications

A. Re‑characterization of the Broker–Client Relationship

TSBA significantly reduces the custodial component of the broker–client relationship in the cash segment. Brokers still owe regulatory duties of best execution, risk management, and compliance with SEBI and exchange norms, but no longer routinely act as bailees or trustees of client cash collateral in TSBA trades. This echoes global moves towards central clearing and direct client–CC connectivity, and resonates with the Supreme Court's insistence, in cases like N. Narayanan versus Adjudicating Officer, SEBI (supra), that those with control over market‑relevant assets and information (including directors and intermediaries) bear heightened duties aimed at preserving market integrity.

B. Fiduciary Duties, Liability Allocation and Enforcement

Where brokers no longer hold substantial client balances, the content of their fiduciary and statutory duties shifts from safekeeping of cash to accurate order routing, robust authentication of client instructions, and correct integration with TSBA infrastructure. Failures in these domains may still attract SEBI enforcement under section 12A of the SEBI Act and regulations such as the SEBI Prevention of Fraudulent and Unfair Trade Practices Regulations, 2003 (“PFUTP Regulations”), as the Court has repeatedly endorsed robust penalties for conduct undermining investor interests.

In SEBI, through its Chairman v. Roofit Industries Ltd. [2015] 12 S.C.R. 190, the Supreme Court held that adjudicating officers and the SAT cannot dilute statutorily prescribed penalties on extraneous grounds such as the violator's impecuniosity, emphasising that section 15J of the SEBI Act exhaustively lists the factors to be considered in fixing penalty quantum. Similarly, in A.R. Dahiya v. SEBI [2015] 12 S.C.R. 202, (a takeover regulation case), the Supreme Court insisted on full and fair disclosure in public announcements and rejected attempts to re-characterise consideration as mere “security” to avoid obligations. These decisions signal that any intermediary failure relating to TSBA, whether in misrepresenting the nature of blocked amounts, mishandling instructions, or misreporting obligations, would likely be viewed through the same strict investor‑protection lens.

C. Cyber‑Security and Systemic Risk Considerations

The consultation paper on blocking of funds in the secondary market expressly recognises implementation risks, including UPI mandate failures, cyber‑attacks, and operational outages, and solicits feedback on real‑time validation and grievance‑redress mechanisms. As settlement architecture becomes more tightly coupled to digital public infrastructure (UPI, National Payments Corporation of India [“NPCI”] systems) and core banking, failures in these layers may have systemic implications; liability allocation among banks, NPCI, brokers and CCs in such events will likely be tested in future disputes and possibly in judicial fora.

VI. Comparative Perspective and Challenges

SEBI's consultation paper notes that the proposed framework, linking UPI‑based retail payment infrastructure directly with secondary‑market settlement, is relatively novel even in comparative terms, with most jurisdictions continuing to rely on prefunded broker pools and traditional clearing arrangements for retail cash market trades. In that sense, TSBA sits alongside India's broader digital ‑ public‑ infrastructure initiatives as a potential model for other markets.

At the same time, the circulars candidly acknowledge implementation challenges: extensive system changes are required at CCs, exchanges, depositories, NPCI and broker level; the 2024 circular therefore provides a long lead time (to February 2025) and permits functional equivalence via 3‑in‑1 accounts to accommodate differing business models. Smaller brokers may face disproportionate compliance costs, and scalability during episodes of market stress remains a live concern.

VII. The Future of Securities Settlement in India

TSBA must be read with other ongoing reforms, experiments towards T+0 settlement, direct CC pay‑outs to client accounts, and tighter collateral norms, to see the emerging picture: Indian equities settlement is moving towards near real‑time, investor‑centric architectures in which intermediaries perform access and advisory functions but hold minimal client assets.

Supreme Court jurisprudence has consistently endorsed SEBI's proactive approach to “market abuse” and underlined SEBI's duty “to protect investors, individual and collective, against opportunistic behaviour of Directors and Insiders of the listed companies so as to safeguard the market's integrity”. TSBA operationalises this philosophy at the infrastructural level by design‑reconfiguring the cash leg of equity trades so that the capacity for opportunistic misuse of investor funds by brokers is structurally curtailed.

The TSBA framework is more than a procedural modification to settlement; it is a structural reformulation of who holds and controls investor cash in the secondary market. By shifting from a broker‑custody model to a CC‑linked bank‑block model, SEBI has targeted long‑standing vulnerabilities arising from broker misuse of client funds and has provided an architecture that is better aligned with the segregation principles embedded in both SEBI regulation and exchange Bye‑laws.

While considerable operational and legal questions remain, particularly around technology integration, liability for infrastructure failures, and the precise delineation of duties among banks, brokers, CCs and NPCI, the direction of travel is clear. TSBA, rooted in ASBA's blocking logic and reinforced by a jurisprudence that prioritises market integrity and investor protection, may well become a defining feature of India's equity settlement scenario and a reference point for global regulatory design in retail securities markets.

Author is a Senior Advocate practicing at Supreme Court of India. Views are personal.