The Indian market will usher in same-day trade settlement from Thursday. Initially, the ‘beta’ framework will be tested only on 25 stocks, which includes only three names from the Sensex components.
JSW Steel, State Bank of India, Bajaj Auto, MRF, Vedanta, and Ambuja Cements are among the stocks where a separate same-day (T+0) settlement will be made available for trades done until 1:30 pm.
The move towards T+0 settlement comes a little over a year after India fully implemented the T+1 settlement cycle and at a time when the US market is yet to fully transition to T+1 settlement.
The same-day settlement framework will remain optional and run parallel to the current T+1 cycle in the equity cash segment. However, not all investors will be able to take advantage of the shorter settlement option as several brokers are not yet ready.
Large brokers including Motilal Oswal Financial Services and Axis Securities said that they will not be offering T+0 from Thursday. Most other large brokers too said that they are waiting for system preparedness before offering the facility.
“This is an optional provision so it is not binding for all brokers to implement it. Only very liquid stocks have been chosen so that there is no problem in the transaction, nor any spot buying makes any difference in the price of the particular scrip,” said Vijay Mehta, president, Association of National Exchanges Members of India (Anmi).
In an earlier circular, the Securities and Exchange Board of India (Sebi) had said that the stock exchanges or depositories will disseminate the list of brokers that will be participating in the beta version of T+0 settlement on a periodic basis.
Further, they will provide a fortnightly report on the progress of the same.
While foreign portfolio investors (FPIs) had raised concerns on liquidity fragmentation and submitted suggestions to the market regulator before it was approved in the board meeting held this month, Sebi chairperson Madhabi Puri Buch said that they held deliberations with offshore funds to rationalise the benefits.
“All investors are eligible to participate in the segment for T+0 settlement cycle, if they are able to meet the timelines, process and risk requirements as prescribed by the market infrastructure institutions (MIIs),” Sebi said in a circular issued earlier this month.
To ensure there is no fragmentation of liquidity, the price spread between T+1 and T+0 settlement will have to be narrow.
Sebi has said, “The price in the T+0 segment will operate with a price band of ±100 basis points from the price in the regular T+1 market. This band will be recalibrated after every 50 bps movement in the underlying T+1 market.”
As per the market regulator, the shorter cycle will help free up capital, allow clients to have better control of their funds and securities, and enhance risk management by clearing corporations.
“This development will increase liquidity for investors, allowing them to quickly enter into other trades without losing out on investment opportunities due to waiting periods. Additionally, the new system will reduce counterparty default risks,” said Samir Shah, Head-Online Business, Axis Securities.
India moved to T+3 (trade plus three days) settlement cycle from T+5 in 2002 and subsequently to T+2 in 2003. In 2021, the T+1 settlement was introduced in a phased manner which was fully implemented from January 2023.
First Published: Mar 27 2024 | 7:48 PM IST