The T+1 settlement cycle is a relatively new concept in the world of finance and stock market operations. This settlement cycle involves the completion of trade-related settlements within 24 hours or a single day after the transaction is completed. This is in contrast to the T+2 settlement cycle, in which the trade settlements are completed within two days after the transactions are done.
Adoption of T+1 Settlement Cycle in India
Recently, India became the second country in the world after China to adopt the T+1 settlement cycle. As many as 256 top mid-cap stocks and large-cap stocks are under this settlement cycle. Despite opposition from foreign investors, the Indian government has implemented this short settlement cycle to ensure fast-paced fund remittance, share delivery, ease of stock market participants, and overall operational efficiency.
Benefits of T+1 Settlement Cycle
The T+1 settlement cycle has several benefits for stock market participants, including:
Faster Fund Remittance
The T+1 settlement cycle helps ensure faster fund remittance as the settlements are completed within 24 hours. This helps reduce the risk of non-payment and ensures that the funds are available for use in a timely manner.
Ease of Stock Market Participants:
The T+1 settlement cycle makes it easier for stock market participants to manage their financial transactions. With the settlements being completed within a single day, they can plan their financial activities more effectively and make timely decisions.
Improved Operational Efficiency
The T+1 settlement cycle helps improve the operational efficiency of the stock market. With the settlements being completed within 24 hours, the stock market can process more transactions in a shorter amount of time. This helps reduce the workload and improve the overall performance of the market.
Reduced Risk of Non-payment
The T+1 settlement cycle helps reduce the risk of non-payment as the settlements are completed within 24 hours. This helps ensure that the funds are available for use in a timely manner and reduces the risk of default.
Challenges in Implementing T+1 Settlement Cycle
Despite the numerous benefits of the T+1 settlement cycle, there are also several challenges that must be overcome in order to successfully implement it. These include:
Technical Challenges
Implementing the T+1 settlement cycle requires significant technological infrastructure and capabilities. This includes a robust and reliable settlement system, efficient data management systems, and secure communication networks.
Regulatory Challenges
The T+1 settlement cycle also requires changes to existing regulations and laws to ensure that it is compliant with existing laws and regulations. This may require significant effort and coordination between various government agencies and regulators.
Resistance from Foreign Investors
Some foreign investors may resist the adoption of the T+1 settlement cycle due to concerns about its impact on the stability of the market and their investments.
