SEBI chief says instant settlement of trades in the works: What does it mean, and how will investors benefit?

Source: The post is based on the article “SEBI chief says instant settlement of trades in the works: What does it mean, and how will investors benefit?”  published in Indian Express on 25th July 2023.

What is the News?

The Securities and Exchange Board of India(SEBI) Chief has said that he is working on real-time settlement of transactions in India’s stock exchanges.

What is meant by Trade Settlement?

‘Settlement’ is a two-way process that involves the transfer of funds and securities on the settlement date.

A trade settlement is said to be complete once purchased securities of a listed company are delivered to the buyer and the seller gets the money.

Currently, there is a lag between trade and settlement — the settlement date is different from the trade date. 

This is because the current cycle of trade settlement is ‘T+1’.This means trade-related settlements happen within a day, or within 24 hours of the actual transaction.The migration to the T+1 cycle came into effect in January,2023.

Note: India became the second country to start the T+1 settlement cycle in top listed securities after China.

What has SEBI announced now?

SEBI has said it is working on a plan for “instantaneous” settlement of trades in the securities market.

This means same-day, or ‘T+0’, settlement of trades will be possible with the real-time payment system — Unified Payments Interface (UPI), online depositories, and technology stack.

What will T+0 change for investors?

Under the current T+1 settlement cycle, if an investor sells securities, the money gets credited into her account the following day. 

Under the T+0 settlement cycle, if investors sell shares, they will get the money in their account instantaneously and the buyers will get the shares in their demat accounts the same day.

This means that the investor’s money will not get stuck with brokers or stock exchanges, they will get the money on the same day after the transactions happen.