T+0 and Instant Settlement Cycle

• 29 Dec 2023

Source: IE

Why in News?

The Securities and Exchange Board of India (SEBI) has proposed a new system for settlement of funds and securities on T+0 (same day) and instant settlement cycle on an optional basis, supplementing the existing T+1 (trade plus one day) settlement cycle in the secondary markets for the equity cash segment.

• By embracing popular instant payment methods such as Unified Payment Interface, SEBI aims to adapt equity trading to modern investor preferences for enhanced flexibility.

What is the Settlement Cycle in the Securities Market?

• T in Settlement Cycles: The "T" in settlement cycles within financial markets refers to the day on which a transaction or trade takes place.
  • In this context, "T" represents the transaction date. The settlement cycle, denoted as "T+n," specifies the number of days after the transaction date (T) by which the settlement or completion of the trade occurs.
• Evolution of Settlements Cycles : SEBI has shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003.
  • Presently, the settlement of funds and securities occurs on the T+1 cycle in India, which was phased in through 2021 and wholly implemented by January 2023.
• SEBI's Proposed Phases for New Settlement Cycles:
  • Phase 1: T+0 Settlement Cycle
    • An optional T+0 settlement cycle is envisioned for trades until 1:30 PM, aiming to settle funds and securities on the same trading day by 4:30 PM.
  • Phase 2: Instant Settlement Cycle
    • An optional immediate trade-by-trade settlement, including funds and securities, with trading until 3:30 PM.
  • SEBI has proposed the initial rollout of the T+0 settlement for the top 500 listed equity shares in three tranches (200, 200,100) based on market capitalization.
    • This initiative corresponds to the changing Indian securities market, marked by surging volumes, values, and participants.
• Benefits:
  • Clients: Enables faster pay-outs of funds against securities for sellers and vice versa, offering enhanced flexibility.
  • Securities Market Ecosystem: Accelerated pay-outs are expected to bolster the market ecosystem's efficiency and liquidity.