In a move to adapt to the fast-paced nature of financial markets, the Securities and Exchange Board of India (SEBI) has proposed the introduction of an optional T+0 and instantaneous settlement cycle for clearing and settlement of funds and securities in the secondary markets for the equity cash segment. The regulator is seeking feedback from stakeholders and the public on this groundbreaking initiative.
The consultation paper released by SEBI highlights the importance of reliability, low cost, and high-speed transactions in attracting investors to specific asset classes. Reducing settlement time is identified as a key factor in enhancing the operational efficiency of dealing in Indian securities, with the aim of drawing and retaining investors in this asset class.
The proposed implementation will occur in two phases. In the first phase, an optional T+0 cycle will be introduced for trades conducted until 1:30 pm, with settlement of funds and securities to be completed by 4:30 pm. The second phase will witness the introduction of an optional instantaneous trade-to-trade settlement for both funds and securities, allowing trading until 3:30 pm.
SEBI plans to discontinue the optional T+0 settlement after the implementation of the second phase of instantaneous settlement. The initial phase will involve the top 500 listed companies based on market capitalization as eligible securities for T+0 settlement.
Addressing concerns about potential increased costs for clients, SEBI pointed out that a significant percentage of retail investors already bring upfront funds and securities before placing orders. Data from June 2023 revealed that approximately 94 percent of delivery-based trades with a value up to Rs 1 lakh per transaction saw investors making early pay-ins of funds and securities.
The move to introduce T+0 and instantaneous settlement builds on previous efforts by SEBI to streamline settlement cycles. In 2002, the regulator shortened the settlement cycle to T+3 from T+5, and subsequently to T+2 in 2003. The introduction of T+1 settlement in 2021, phased in over time, was fully implemented from January 2023.
This proposal marks a significant step towards aligning India’s securities markets with global standards, fostering a more dynamic and investor-friendly trading environment.
