The Securities and Exchange Board of India (SEBI) has taken a significant step towards modernizing the Indian stock market by introducing a proposal for same-day settlement (T+0) and instant settlement on an optional basis. This proposal has been detailed in a consultation paper issued by SEBI.
Key Highlights of the Proposal:
- Phased Implementation: The proposal is set to be implemented in two phases. The first phase envisions an optional T+0 settlement cycle for trades completed by 1:30 PM, with the settlement of funds and securities to be completed by 4:30 PM on the same day. The second phase will see the introduction of instant settlement for all trades conducted until 3:30 PM.
- Optional Nature: The new settlement cycles are designed to be optional, existing alongside the current T+1 settlement cycle in the secondary markets. This offers flexibility to market participants to choose the settlement cycle that best suits their needs.
- Scope of Implementation: Initially, the T+0 settlement will be available for the top 500 listed companies based on market capitalization.
- Technological Advancements: The initiative is driven by the significant evolution of payment systems in India and the sophisticated, robust technologies used by market infrastructure institutions (MIIs). Additionally, the Indian banking system’s efficiency in providing real-time transfer of funds and the depository system’s visibility of client-level holdings have been crucial enablers.
- Regulatory Intentions: SEBI aims to establish Indian equities as a resilient, low-cost, and efficient asset class. The option for instant settlement is expected to enhance the appeal of Indian equities.
- Addressing Concerns: Potential issues such as liquidity fragmentation, efficient price discovery, and increased trading costs have been acknowledged. SEBI believes that participants who can access both T+0 (or instant settlement) and T+1 markets will help bridge price and liquidity gaps between the two segments.
- Stakeholder Input: SEBI has invited comments and inputs from stakeholders and the public on the introduction of this facility.
- Timeline: The SEBI chairperson recently indicated a readiness to introduce the T+0 settlement by March. This follows the earlier transition from T+2 to T+1 settlement.