The Securities and Exchange Board of India (SEBI) is planning to introduce a new settlement system for the equity cash segment in the secondary markets. This system aims to offer funds and securities settlement on T+0 (same day) and immediate settlement cycles, supplementing the existing T+1 (trade plus one day) model. SEBI’s adoption of popular instant payment methods like Unified Payment Interface represents an effort to align equity trading with contemporary investor expectations for increased versatility.
Understanding the Settlement Cycle in the Securities Market
The term “T” denotes the day of the transaction or trade in settlement cycles within financial markets. In the context of the settlement cycle represented as “T+n,” the “n” details the number of days following the transaction date (T) that the fulfillment or finalization of the trade is executed.
Evolution of Settlement Cycles
Since 2002, SEBI has progressively reduced the settlement cycle from T+5 to T+3, and then further to T+2 in 2003. Currently, the settlement of funds and securities in India is conducted on a T+1 cycle. This model was gradually introduced throughout 2021 and fully implemented by January 2023.
SEBI’s Proposed Phases for New Settlement Cycles
The introduction of new settlement cycles comprises two distinct phases:
Phase 1: T+0 Settlement Cycle
Under the proposed system, an optional T+0 settlement cycle will apply to trades until 1:30 PM, with the intention of settling both funds and securities on the same trading day by 4:30 PM.
Phase 2: Instant Settlement Cycle
This phase introduces an optional immediate trade-by-trade settlement, inclusive of both funds and securities, with trading operational until 3:30 PM.
According to SEBI’s proposal, the initial rollout of the T+0 settlement model will apply to the top 500 listed equity shares, divided into three tranches (200, 200, 100) based on market capitalization. This initiative is seen as a response to the rapid growth of the Indian securities market, characterized by increasing volumes, values, and participants.
Benefits of New Settlement Cycles
The proposed changes are expected to yield considerable benefits for both clients and the overall securities market ecosystem.
For clients, the updated system enables faster payouts of funds against securities for sellers, and vice versa, thus providing more flexibility.
As for the market ecosystem, expedited payments are anticipated to enhance efficiency and liquidity, thereby strengthening the sturdiness and vibrancy of the market.
