SEBI Sets New Milestones: One-Hour Settlement by 2024, Instant Settlement by 2025

The Securities and Exchange Board of India (SEBI) is making significant strides in the evolution of trade settlements in the Indian stock market. The regulator has announced plans to implement a one-hour trade settlement by March 2024 and aims to introduce instantaneous settlement by October 2024. This marks a progressive shift from the current T+1 settlement cycle, where trades are settled one day after the transaction.

Key Developments in Trade Settlements

1. Transition to T+1 Settlement:
   • India transitioned to a T+1 settlement cycle from T+2, starting with bottom companies in terms of market capitalization and moving to top companies by the end of January. This change positioned India as the first jurisdiction globally to adopt the T+1 settlement cycle for all its scrips​​​​.
2. One-Hour Settlement by March 2024:
   • SEBI Chairperson Madhabi Puri Buch announced the regulator’s plan to implement a one-hour trade settlement cycle by early next year. This move is seen as a stepping stone towards instantaneous settlement and is considered a significant technological advancement in the trading domain​​​​​​​​.
3. Instantaneous Settlement by October 2024:
   • Following the implementation of the one-hour settlement, SEBI aims to introduce instantaneous settlement, where trades will be settled immediately. This will be a major breakthrough, making India one of the few countries with such a rapid settlement system​​​​.
4. Impact on Market Participants:
   • The one-hour settlement system means shares will be credited to the demat account within an hour of the trade. For foreign investors, the instant trade settlement will be optional and not mandatory. This flexibility is expected to cater to the diverse needs of market participants​​​​.
5. Potential Benefits:
   • The shift to faster settlement cycles is expected to release a significant amount of margin back into the system, increasing liquidity and reducing settlement failures. SEBI’s move is in line with global trends and aims to enhance the efficiency and attractiveness of the Indian stock market​​.

Conclusion

The move towards faster settlement cycles by SEBI is a landmark decision in the Indian financial markets, expected to enhance market efficiency, reduce risks, and provide greater flexibility to market participants. The implementation of one-hour and instantaneous settlements will position India at the forefront of global best practices in stock market operations. This change not only reflects SEBI’s commitment to leveraging technology for market advancements but also indicates a significant shift towards more investor-friendly practices in the Indian stock market.