T+0 Settlement Cycle: SEBI Proposes Instant Settlement Cycle

Source– This post is based on the article “T+0, instant settlement cycle: What is the new SEBI proposal and its potential benefits for investors?” published in “The Indian Express” on 26th December 2023.

Why in the News?

The Securities and Exchange Board of India (SEBI) has proposed to introduce the T+0 settlement cycle on an optional basis. This facility will be in addition to the existing T+1 (trade plus one day) settlement cycle.

What is the current settlement cycle followed in the securities market?

1) Currently on Indian exchanges, the settlement cycle for all traded instruments is T+1 day, with T representing the trading day. It was introduced in 2021 in a phased manner and was fully implemented in 2023.

2) T+1 means settlements will have to be cleared within one day after the actual transaction takes place. For example- trades executed on Monday gets settled on Tuesday, the next working day.

What has SEBI proposed now?

1) It suggested adding a shorter settlement cycle as an option for the equity cash segment, alongside the existing T+1 cycle.

2) The proposed implementation involves two phases:
a. Phase 1 – An optional T+0 settlement cycle (for trades until 1:30 PM) is envisioned, aiming to conclude the settlement of funds and securities on the same day by 4:30 PM.
b. Phase 2 – There’s an option for immediate trade-by-trade settlement (funds and securities). Trading in this phase will continue until 3:30 PM.

3) SEBI proposes initially introducing T+0 settlement for the top 500 listed equity shares, categorized by market capitalization. This will be implemented in three phases of 200, 200, and 100 shares, progressing from the lowest to the highest market cap.

4) Securities under the trade-for-trade settlement will not be permitted for T+0.

What are the Benefits of the New Settlement Cycle?

1) An immediate settlement mechanism allows for the instant receipt of funds and securities, in contrast to the current T+1 day pay-out.

2) It will strengthen investor protection by enhancing the control of the investor over the securities and funds.

3) It can position Indian equities as a resilient, cost-effective, and time-efficient asset class, surpassing emerging contenders in alternative asset classes.

UPSC Syllabus- Indian Economy