The current stock market works on the T+1 settlement cycle, in which transactions are settled in Transaction plus one working day. The new settlement cycle is being pushed by many for a faster speed in the equity cash segment.
Mumbai: The Securities and Exchange Board of India has asked the stakeholders to share inputs and comments regarding the introduction of the T+0 settlement system for clearing and settlement of funds and securities. The current stock market works on the T+1 settlement cycle, in which transactions are settled in Transaction plus one working day. The new settlement cycle is being pushed by many for a faster speed in the equity cash segment, as per a report covered by IANS.
Growth In Indian Securities Market
Over the last few years, the Indian securities markets have seen tremendous growth, both in terms of volumes and value as well as the number of participants. This increase in the participation of new investors in the securities market puts greater onus on SEBI to make markets more efficient and safer for its participants, with a special focus on retail participants, a SEBI consultation paper said.
Introduction Of T+1 Settlement
SEBI, in its endeavour to keep pace with the changing times and carry out its mandate of development of securities markets and investor protection, shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003. Further, in 2021, the T+1 settlement was introduced in a phased manner, which was fully implemented in January 2023.
It is observed that a high percentage of retail investors bring upfront funds and securities before placing an order. For the period June 2023, for around 94% of delivery-based trades with a value up to Rs 1,00,000 per transaction, investors made early payments of funds and securities.
An instant settlement mechanism enables instant receipt of funds and securities, vis-à-vis existing pay-outs on T+1 days, eliminating the risk of settlement shortages since both funds and securities will be required to be available before placing the order.
Clearing The Risk Exposure of Clearing Corporations (CCs)
This also eliminates the risk for market participants and reduces the risk exposure of Clearing Corporations (CCs). Strengthens investor protection by enhancing the control of the investor over the securities and funds, as funds and securities would be credited directly into the clients’ accounts for those who are trading through blocked amounts using the UPI facility (UPI clients).
(With inputs from agencies)