- Along with the existing T+1 cycle, the Securities and Exchange Board of India (SEBI) has proposed implementing T+0 (same day) and instant settlement cycles in the equities cash segment.
Current Settlement Cycle
- Evolution: In 2002, SEBI reduced the settlement period from T+5 to T+3, and finally to T+2 in 2003. The T+1 cycle was introduced in 2021 and will be completely operational by January 2023.
- T+1 Cycle: Currently, monies and securities are settled the next day after the trade.
T+0 Settlement Cycle
- SEBI intends to implement the shortened cycle in two stages: Phase 1 with T+0 settlement and Phase 2 with Instant Settlement.
- T+0 Settlement Information: Trades executed till 1:30 PM will be resolved by 4:30 PM the same day in Phase 1.
- Mechanics of Instant Settlement: Phase 2 calls for trade-by-trade settlement, with trading continuing until 3:30 PM.
Implementation and Scope
- Initial Concentration: T+0 settlement will first be offered for the top 500 listed equity shares based on market capitalization, and will be deployed in three tranches.
- Surveillance Techniques: The identical surveillance methods that were used in the T+1 cycle will be used in the T+0 cycle. T+0 will not be available for trade-for-trade settlement securities.
Reasons for Shortening the Settlement Cycle
- Market Growth and Efficiency: With large increases in market volumes and participants, SEBI seeks to improve market efficiency and safety, particularly for retail investors.
- Technological Progress: Shorter settlement cycles are possible due to the evolution of payment technologies such as UPI and the sophistication of market infrastructure.
- Attraction of Investors: Faster transactions, dependability, and low costs all entice investors, making Indian securities a more enticing asset class.
The Characteristics of the Proposed T+0 Settlement Mechanism
- Trends in Early Pay-In: A significant proportion of retail investors already make early payments into funds and securities, demonstrating their readiness for fast settlement.
- Benefits of Instant Receipt: The mechanism allows for the immediate receipt of payments and securities, decreasing settlement shortages and increasing investor control.
- Investor Protection: The direct crediting of funds and securities into investors’ accounts, particularly for UPI clients, improves investor protection.
Advantages of the New Mechanism
- Clients’ Flexibility: The new system provides greater flexibility and control by paying out monies to sellers and securities to buyers more quickly.
- Advantages of the Market Ecosystem: The shorter settlement cycle is projected to improve the securities market’s operational efficiency, benefiting the entire ecosystem.
Source: https://www.livemint.com/market/stock-market-news/sebis-t-0-settlement-plan-will-boost-liquidity-but-analysts-warn-of-impact-on-brokers-business-model-11703585879924.html#:~:text=Sebi%20has%20proposed%20a%20phase,day%20by%204%3A30%20pm.