You see, the National Payments Corporation of India (NPCI) started 2024 with a bang by launching “UPI for secondary markets”, a pilot program currently in beta phase.
But first, a brief refresher on how you buy stocks in the equity markets—
See, to buy shares you need to deposit money into a trading account with your broker. This could be Zerodha*, Groww, Sharekhan, ICICI Securities, etc.
Once, the order is executed at the stock exchange, the broker transfers the funds to the clearing corporation. The clearing corporation is responsible for handling the confirmation, settlement, and delivery of stock trading transactions.
But with this latest development, instead of transferring money to the broker, investors will be able to block funds in their bank account for trading in the secondary market via UPI.
Here, unlike the existing system, the funds will remain in the investor’s account but will be blocked in favor of the clearing corporation.
So, does this new system eliminate the need for stock brokers?
Absolutely not!
You see, this pilot program is only limited to the equity cash segment, which means equity futures, commodities, etc. can’t be traded via this system.
Moreover, not all banks, UPI platforms, and stock brokers are supporting it yet.
This beta launch is only available on NPCI's BHIM app & YES PAY NEXT on the UPI front, and on HDFC and ICICI on the banking front.
And, most importantly, the pilot has only been rolled out to a select few customers. So, you might have to wait a while before you can test it out.
How do you think this will impact equity market participation? Let us know in the comments.
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*Zerodha, through its fund Rainmatter, is an investor in Finshots.
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This post was originally shared by Bhanu Harish Gurram on Linkedin.