The Securities and Exchange Board of India (SEBI) seeks to bring a revolution in trade settlement processes by launching One-Hour Settlement of trades by March 2024. Additionally, an Application Supported by Blocked Amount (ASBA)-like facility is expected to be initiated for trading in the Secondary Market by January 2024.
Understanding Application Supported by Blocked Amount (ASBA)
ASBA, introduced by SEBI, is an effective mechanism designed to streamline the application and allotment process for Initial Public Offerings (IPOs), rights issues, and other securities offerings. This investor-friendly approach allows investors to apply for shares without having the necessity of transferring the entire application amount in advance. It ensures that the amount set for subscribing the shares does not get deducted from the investor’s account until the shares have been allotted by the issuing company.
Trade Settlement: An Overview
Trade settlement is a vital procedure in the financial markets which ensures a smooth transfer of funds and securities between parties involved in a trade. In the sphere of securities trading, this process seals the transaction. With the adoption of the T+1 settlement cycle in January 2023, India became the second country after China to implement this system for top-listed securities. The transitioning to the T+1 settlement cycle brought in a wave of benefits like enhanced operational efficiency, rapid fund transfers, swift share delivery, and convenience for participants in the stock market.
SEBI’s Vision for Real-Time Trade Settlement
In a bid to reduce settlement time, SEBI plans to launch a One-Hour Trade Settlement scheme. With this initiative, when an investor sells a share, the money from the sale will be credited to their account within one hour, simultaneously, the buyer will receive the purchased shares in their demat account within the same timeframe. This is a substantial reduction from the existing T+1 cycle. Although SEBI acknowledges that achieving instantaneous settlement is a more complex task, requiring further technological advancements, it is targeting to launch this service by the end of 2024.
The Benefits Associated with One-Hour Trade Settlement
One-Hour Trade Settlement brings along several advantages. Investors will enjoy faster transactions which would enable quicker access to funds and securities. Market liquidity can be significantly improved as funds become available for reinvestment sooner. By reducing the settlement time, risks associated with counterparty and market can be mitigated, thus enhancing overall market stability. Additionally, investors are likely to appreciate quicker access to their funds and securities, increasing the user-friendliness of the market.
Last Modified: February 22, 2024