SEBI’s T+0 Quantum Leap: Instant Stock-Magic!
With its planned 1-hour trade settlement method, SEBI, or the Securities and Exchange Board of India, intends to modernise the trade settlement process. This is expected to be implemented before the conclusion of the fiscal year. Faster trade settlement is essential in today’s fast-paced environment, when speed and efficiency are critical. Trade settlement is critical for seamless operations, especially in financial markets.
SEBI’s recent announcement regarding a move towards 1-hour trade settlement has garnered significant attention.
What is one hour trade settlement proposed by SEBI?
SEBI has been working on implementing real-time trading settlement. For the time being, the objective is to first execute one-hour trade settlement and then build a method that allows for immediate settlement. Trades may be finalised promptly, and businesses can get dollars and securities at the same time. This action would likely change global markets and create new norms.
Why do shares currently take 1 day to settle?
In India, the settlement cycle for equities trading has progressed from 30 days to T+2 days and finally T+1 days, which became operational in January 2023. With this, India became the world’s second country, after China, to adopt the T+1 (trade plus one day) settlement time.
The settlement process includes a number of backend activities, such as clearing and payment systems, which take time to verify and complete. The one-day settlement time provides for a seamless transfer of securities from seller to buyer while also ensuring that monies are appropriately paid.
Because of the current T+1 settlement cycle, trade settlements are completed within a day or 24 hours of the transactions. This has resulted in increased operating efficiency, faster fund repatriation, faster share distribution, and more convenience for stock market participants.
What are the benefits and drawbacks of 1-hour trade settlement?
The proposal by SEBI to introduce T+0 instantaneous settlement for the equity cash segment comes with its own set of pros and cons. On the positive side, this move could significantly reduce settlement times, providing faster access to funds and enhancing liquidity in the market. Traders and investors may benefit from quicker capital turnover, leading to more efficient and dynamic trading activities. However, on the flip side, such instantaneous settlements might increase the risk of errors and operational challenges, as the margin for correction or adjustment becomes narrower. Additionally, the rapid pace of settlement may amplify market volatility and potentially impact risk management strategies. Striking a balance between speed and stability will be crucial for the successful implementation of this proposal. Below are some more areas to be looked upon regarding this:
T+0 or immediate trade settlement is achievable, according to SEBI chairman Mr. Madhabi Puri Buch, due to the availability of real-time payment systems such as Unified Payments Interface (UPI), online depositories, and other technological stack. “For immediate settlement, the system requires some further technological advances, which may take another 6–8 months,” she added.
Sebi intends to implement the T+0 settlement cycle in two phases. During phase one, Settlement of money and securities will be completed on the same day for share trades conducted before 1:30 PM.
The regulator will add an optional instantaneous trade-by-trade option in phase 2.
The regulator stated that following the adoption of optional immediate settlement, the technique of optional T+0 settlement adopted in phase 1 will be abandoned.
Investors that handle their trades and settlements through custodians would be excluded from same-day (T+0) settlement. Brokers predicted that these investors would include institutional investors, mostly overseas money. However, with real-time settlement, all investors, including those settling through custodians, would be permitted.
To begin, T+0 settlement would be offered in the top 500 listed equity shares by market size. According to the company, this will be done in three tranches of 200, 200, and 100 from the lowest to greatest market cap.
According to the regulation, exchanges would designate a new scrip code for T+0. It has also recommended a 1% price range for a stock between two settlements. To begin, T+0 settlement would be offered in the top 500 listed equity shares by market size. According to the company, this will be done in three tranches of 200, 200, and 100 from the lowest to greatest market cap.
According to the regulation, exchanges would designate a new scrip code for T+0. It has also recommended a 1% price range for a stock between two settlements.
Conclusion
The SEBI’s pursuit of a one-hour trade settlement system reflects its dedication to improving market efficiency and aligning India with global trends. While the shift to real-time settlement may have an impact on day trading, the use of margin money and fast delivery of securities can help to sustain activity in this segment. As India pushes toward immediate settlement, it establishes a new standard for global capital markets, paving the path for more liquidity and faster ownership transfers.
