The Securities and Exchange Board of India (SEBI) is pushing for significant changes in the settlement process of stock exchanges. Currently, trades on Indian stock exchanges are settled on a T+1 (Trade Day + 1) basis, meaning transactions are completed on the next business day after the trade occurs. SEBI has set an ambitious target to implement a same-day settlement, or T+0, by March 2024, with a long-term vision of achieving real-time, instantaneous settlement.
Madhabi Puri Buch, the Chairperson of SEBI, has outlined the regulatory body’s plan to transition from T+1 to T+0 settlement by the specified deadline. T+0 settlement involves completing trades on the same day they occur, and the subsequent goal is to achieve instantaneous settlement, which refers to real-time transaction settlement.
Buch mentioned that market makers have suggested a direct leap from T+1 hour to T+instantaneous settlement, as they see no significant benefits in adopting the intermediate T+0 settlement. SEBI is open to feedback and suggestions from market participants regarding the move to instantaneous settlement.
The proposed settlement system will operate alongside the existing one, providing flexibility as an optional choice for market participants. Initially, the new system will be applicable to select large products, and even within that scope, participation will be optional.
The transition from T+2 to T+1 settlement in India took place earlier in the year, settling trades on the next business day instead of two days later. Buch noted that this transition has been smooth from an infrastructure perspective.
SEBI’s plans are linked to the success of the recently introduced Application Supported by Blocked Amount (ASBA) for secondary market transactions. Concerns raised by certain foreign portfolio investors regarding the shortened settlement cycles, particularly related to forex considerations, led to the introduction of these changes.
SEBI had previously announced its goal of introducing instantaneous settlement by the next fiscal year, and the regulator’s intention to implement one-hour trade settlements by the end of the current fiscal year, with the ultimate aim of moving towards instantaneous settlement processes. The phased approach and flexibility in implementation demonstrate SEBI’s responsiveness to market dynamics and concerns raised by participants.
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