India’s securities regulator SEBI has said that there will soon be a mechanism to facilitate real-time settlement of transactions in India’s stock exchanges. This would address the lag that comes between trade and settlement involving the transfer of funds and securities on the same date. This announcement made by the SEBI chairperson Madhabi Puri Buch comes months after the regulator cut the settlement cycle from trade-plus-two (T+2) to T+1.
The settlement process is presently delayed by a day, which means the settlement date and the trade date are different. Trade settlements are complete when the seller receives the money and the securities bought are delivered to the buyer.
The ‘T+1’ cycle was introduced in January this year. This indicates that settlements can be complete within 24 hours of the actual transaction instead of the earlier 48 hours after the transaction. This revised cycle intends to improve operational efficiency, speedy fund remittances, share delivery and an overall simplification of transactions for stock market participants. After China, India became the second country to implement the T+1 settlement cycle for top listed securities.
SEBI is developing a method such that trade settlements in the securities market can be made on the same day. Such settlements (T+0) are to be made possible via Unified Payments Interface (UPI), online depositaries and technology stack.
“Certainly, one of the things that we think is not very far off is the instantaneous settlement on the stock exchanges. We are currently working on that. We are also engaged with the ecosystem. We believe that in future we will have a mechanism which will facilitate instantaneous settlement of transactions on stock exchanges,” media reports quoted Buch as saying.
Currently, if an investor sells shares under the T+1 settlement cycle, the money gets credited to their account the next day. In comparison, investors will receive immediate payment under the T+0 settlement cycle, while buyers will receive the shares in their demat account on the same day.
The SEBI chairperson further said that full migration to the T+0 settlement cycle would take time. She added that if the Application Supported by Blocked Amount (ASBA) framework, which aims to bring transparency and safeguard investor’s money held by stock brokers, succeeds then the next action would be “instantaneous settlement”.
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