OPERATION
T+0 SETTLEMENTS - ECONOMY
News:
T+0 Settlement: A new
dawn in Indian stock market
What's
in the news?
●
The much-awaited T+0 settlement is finally
here. The Indian stock market is poised for a significant transformation with
the introduction of same-day settlement.
Key
takeaways:
●
Traditionally, Indian exchanges followed a
T+2 settlement cycle, meaning trades were settled two business days after
execution.
●
This was shortened to T+1 in January 2023
starting in a phased manner from January 2022.
●
The market is now moving to same-day
settlement of trades, within a year of fully implementing the T+1 cycle.
Settlement:
●
‘Settlement’ is a two-way process that
involves the transfer of funds and
securities on the settlement date.
●
As of now, there is a lag between trade
and settlement — the settlement date is different from the trade date.
●
A trade settlement is said to be complete
once purchased securities of a listed company are delivered to the buyer, and
the seller gets the money.
Current
T+1 Cycle:
●
The current cycle of ‘T+1’ in India means
trade-related settlements happen within a day, or within 24 hours of the actual
transaction.
●
The migration to the T+1 cycle came into
effect in January this year.
India's
Progressiveness:
●
India became the second country to start the T+1 settlement cycle in top listed
securities after China, bringing operational efficiency, faster fund
remittances, share delivery, and ease for stock market participants.
T+0
(Real-time Settlement):
●
SEBI has said it is working on a plan for “instantaneous” settlement of trades in the
securities market.
●
In future, we will have a mechanism which
will facilitate instantaneous settlement of transactions on stock exchanges.
●
Same-day, or ‘T+0’, settlement of trades
will be possible with the real-time
payment system — Unified Payments Interface (UPI), online depositories and
technology stack.
What
will change for investors with T+0?
●
Under the current T+1 settlement cycle, if
an investor sells securities, the money gets credited into her account the
following day.
●
Under the T+0 settlement cycle, if
investors sell shares, they will get the money in their account
instantaneously, and the buyers will get the shares in their demat accounts the
same day.
●
The investor’s money will not get stuck
with brokers or stock exchanges, they will get the money on the same day after
the transactions happen.
Stages
of Settlement:
There will be two stages
to the T+0 settlement cycle.
●
Phase
1
deals made up to 1:30 pm will be taken into account for the settlement, which
must be finished by 4:30 pm.
●
Trading will begin at 1:30 pm and last
until 3:30 pm in the second phase
and the first phase will be discontinued.
Benefits:
●
A shortened settlement cycle will bring
cost and time efficiency, transparency in charges to investors, and strengthen
risk management at clearing corporations and the overall securities market
ecosystem.
●
The T+0 trade cycle is expected to provide
flexibility in terms of faster pay-out of the funds against the securities to
the sellers and faster pay-out of securities against the funds to the buyers.
●
It will allow better control over funds
and securities by the investors.
●
For the securities market ecosystem, a
shorter settlement cycle will further free up capital in the securities market,
thereby enhancing the overall market efficiency.
●
It will enhance the overall risk
management of Clearing Corporations (CCs) as the trades are backed by upfront
funds and securities.