What is Sebi’s proposal regarding trade settlement?
Sebi, the market regulator in India, is proposing to shorten the trade settlement cycle. Currently, trades are settled in T+1, which means one day after the trade. The new proposal aims to settle trades within just one hour of execution.
When is Sebi planning to implement this change?
Sebi plans to implement the one-hour trade settlement cycle starting in March 2024 if everything goes according to plan.
How does this change compare to other countries?
India will be the first country globally to have a T+1 hour settlement cycle. Currently, China is the only other country with a T+1 cycle, while most other major economies, including the US and European countries, have T+2 settlement cycles.
What are the benefits of this one-hour settlement?
The one-hour settlement is expected to provide quicker access to funds and securities, improve market liquidity, reduce various risks, and make the Indian stock market more accessible to investors.
How did trade settlement work in India historically?
In the past, trade settlements in India took several days, with the longest being the T+5 cycle, where it took five days to settle a trade after execution. This has gradually reduced over the years to T+1.
What are some challenges associated with this proposal?
Some challenges include ensuring smooth settlement with foreign portfolio investors (FPIs), especially in cross-currency trades and dealing with time differences. The impact on trade execution costs is also a consideration.
How will investors benefit from this change?
Investors can expect faster settlement of trades, which means they will have access to their funds more quickly. It’s akin to the speed of transactions using the Unified Payments Interface (UPI).
What additional facility is Sebi planning to launch?
Sebi intends to launch an Application Supported by Blocked Amount (Asba)-like facility for trading in the secondary market by January 2024. Asba is designed to facilitate the application and allotment process for various securities offerings.
