Proposal by SEBI for T+0 Instant Settlement Cycles

  • 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.
And get notified everytime we publish a new blog post.