The Securities and Exchange Board of India (SEBI) has unveiled a plan to introduce an optional system for the immediate clearing and settlement of funds and securities on the same day (T+0) and instant settlement cycle. This initiative is designed to complement the current T+1 (trade plus one day) settlement cycle used in the secondary markets for the equity cash segment.
Understanding the Settlement Cycle
Traditionally, SEBI has been progressively reducing the settlement cycle — the time between a trade and the final settlement — to make trading more efficient. From T+5 days in 2002, it was shortened to T+2 days in 2003. As of now, India operates on a T+1 settlement cycle, fully implemented in January 2023, where the transfer of stocks and funds is completed the day after the trade.
SEBI’s New Proposal
SEBI’s consultation paper suggests adding shorter settlement cycles as an option for the equity cash segment. The proposal is to implement this in two stages:
Phase 1 – T+0 Settlement Cycle: This phase introduces an optional same-day settlement cycle for trades completed by 1:30 PM, with the final settlement occurring by 4:30 PM the same day.
Phase 2 – Instant Settlement Cycle: This further step envisages an immediate settlement for each trade, with trading continuing until 3:30 PM.
Initially, the T+0 settlement will be available for the top 500 listed equity shares based on market capitalization, introduced in three sets starting from those with the lowest market cap to the highest. The same surveillance measures from the T+1 cycle will apply to the T+0 cycle, but securities under trade-for-trade settlement won’t be eligible for T+0.
Why the Change?
SEBI’s move comes in response to the significant growth in the Indian securities market, which has seen an increase in volume, value, and the number of participants, especially retail investors. The regulator aims to enhance market efficiency and safety. The advent of instant payment systems like UPI (Unified Payments Interface) in India, known for their reliability and speed, suggests that the securities market could benefit from similar transaction speeds.
Faster settlements could attract more investors by reducing the time they need to wait for the funds or securities to be transferred. For investors, this means quicker access to their funds or stocks. For the market ecosystem, it represents an opportunity to enhance operational efficiency and investor appeal.
SEBI’s proposal is aimed at making Indian markets more attractive and keeping pace with global standards by offering investors the flexibility and speed they increasingly expect in today’s digital age.
