The Securities and Exchange Board of India (SEBI) is aiming to introduce one-hour settlement of trades by March 2024. Currently, trade settlements in India follow a T+1 cycle, meaning it takes one day for funds to be credited and shares to be delivered. The move to one-hour settlement is expected to bring operational efficiency and faster transactions to the Indian stock market. Additionally, SEBI is considering launching an Application Supported by Blocked Amount (ASBA)-like facility for secondary market trading in January 2024.
Facts/Terms for UPSC Prelims
- Trade Settlement: Trade settlement refers to the process of transferring funds and securities between buyers and sellers on the settlement date, signifying the completion of a financial transaction.
- T+1 Cycle: The T+1 settlement cycle indicates that trade-related settlements occur within one business day following the transaction date. In India, this system was implemented in January.
- Application Supported by Blocked Amount (ASBA): ASBA is a mechanism that allows investors to apply for initial public offerings (IPOs) and follow-on public offerings (FPOs) without actually transferring funds until the shares are allotted to them.
- Demat Account: A demat (short for dematerialized) account is an electronic account that holds an investor’s securities in digital form, eliminating the need for physical share certificates.
- Operational Efficiency: Operational efficiency refers to the ability of an organization or system to utilize resources effectively and minimize wastage while achieving its goals, often leading to cost savings and improved performance. In the context of SEBI’s plans, it involves streamlining trade settlement processes to make them faster and more efficient.
