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Sebi issues paper on instant settlement of trades, seeks views

The shorter settlement cycle of T+0 is being considered for the equity cash segment as an optional mechanism in addition to the current T+1 (Trade plus one day) cycle.

The Securities and Exchange Board of India (Sebi) has proposed the implementation of a same-day settlement cycle (T+0) in two phases as an initial step towards instantaneous settlement.

According to a Sebi consultation paper, in Phase 1, an optional T+0 settlement cycle (for trades till 1:30 pm) is envisaged, with settlement of funds and securities to be completed on the same day by 4:30 pm.

“In Phase 2 an optional immediate trade-by-trade settlement (funds and securities) may be carried out. In the second phase, trading will be carried out till 3.30 pm,” it said.

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The shorter settlement cycle of T+0 is being considered for the equity cash segment as an optional mechanism in addition to the current T+1 (Trade plus one day) cycle.

T+0 settlement means shares bought or sold will be delivered and payment will happen on the same day.

Festive offer

Sebi shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003. In 2021, T+1 settlement was introduced in a phased manner which was fully implemented from January 2023.

“The significant evolution of payment systems in the country in recent years coupled with sophisticated and robust technologies used by Markets Infrastructure Institutions (MIIs) appears to present further opportunities for advancing the clearing and settlement timelines, on an optional basis,” the Sebi paper said.

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To begin with, T+0 settlement should be made available in top 500 listed equity shares based on the market capitalisation. This will be done in three tranches of 200, 200, 100 from lowest to highest market cap.

The exchanges shall coordinate to publish a common list of securities and calendar for migration under T+0 settlement. “The surveillance measures applicable in the T+1 settlement cycle shall be applicable to securities in the T+0 settlement cycle. Securities under trade-for-trade settlement shall not be permitted for T+0. Securities trading in periodic call auction sessions should not be permitted,” Sebi said.

“It is observed that a high percentage of retail investors bring upfront funds and securities before placing the order. For the period June 2023, for around 94% of delivery-based trades with value up to Rs one lakh per transaction, investors made early pay–in of funds and securities,” the Sebi paper said.

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An instant settlement mechanism enables instant receipt of funds and securities, vis-a-vis existing pay-out on T+1 day. It eliminates the risk of settlement shortages, since both funds and securities will be required to be available before placing the order.

“This also eliminates the risk for market participants and reduces the risk exposure of Clearing Corporations (CCs). It strengthens investor protection by enhancing the control of the investor over the securities and funds as funds and securities would be credited into the clients’ account directly for those who are trading through blocked amount using UPI facility,” it said.

Sebi has sought comments from the public till January 12.

First published on: 23-12-2023 at 00:19 IST
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