Sebi study says T+1 will spawn big savings

Migrating to the T+1 rolling environment will mean significant savings for the capital markets, according to a cost-benefit analysis done by the Securities and Exchange Board of India (Sebi).

According to the study, for every likely expense of 0.85 paise, there will be a benefit of Re 1, that is the cost-benefit ratio is 0.85.

The capital markets regulator has worked out the detailed cost and savings involved in migrating from the current T+2 to a T+1 settlement and according to the study the total estimated cost is around Rs 45.50 crore while the benefits are to the tune of Rs 53.50 crore.

The main constituents of the capital markets who will be benefited from the shorter settlement period are the investors.

According to the report, "the major class of beneficiaries are investors as they are able to save on in the form of interest on margin money."

Brokers will be the second major beneficiaries. Incidentally the study has pointed out that incremental costs and benefits are negligible to the depositories and brokers while clearing corporation, "being only a conduit do not have much of incremental cost and benefit."

According to the methodology adopted by Sebi, the costs and benefits - obtained through a detailed questionnaire from various market participants - were discounted by using the net present value techniques.

In the market there are four main categories of constituents - - stock exchanges, depositories, clearing corporation, and stock brokers, who are supposedly affected by the change.

Though, there are 23 stock exchanges, nearly all the trading volume takes place on the NSE and the BSE. Therefore, these were the two exchanges for the study.. Five broking firms were also covered.

The study has concluded that the benefits exceed the costs of migrating to a T+1 environment the current T+2 settlement system.

Sebi has however said that caution needed to be exercised, "as there are many unquantifiable issues and the introduction of T+1 is expected to change the microstructure substantially."

For the system to actually migrate to the two day settlement cycle, it is essential that movements of securities and money between the various market intermediaries along with the investor, should take place seamlessly.

Sebi has managed to introduced this seamless connectivity, at least partially in the form of straight through processing, for the institutional segment of the market. Once this percolates to the retail segment of the market then the entire market will be witnessing seamless transaction.

However only seamless transfer of securities are taking place now and for T+1 to be implemented it is necessary also for funds to be transferred seamlessly. This requires electronic funds transfer which is also being implemented in limited forms in the banking system.

Once it is allowed to travel between the various intermediaries then both securities and funds would be integrated into the system.

Mangalore Stock Exchange to be de-recognised:

Sebi on Wednesday said it will not renew the recognition granted to the Mangalore Stock Exchange (MSE).

The exchange has not fulfilled most of the conditions on the basis of which it was granted the last one-year renewal, Sebi said.

MSE was first granted recognition as a stock exchange in September 1985, and was subsequently renewed until 8 September, 2003. The last renewal was given subject to fulfillment of certain conditions, Sebi said.

Subsequently, it was discovered that the exchange had implemented only some of the conditions completely, it said.

The order shall come into force after three weeks from Tuesday, Sebi said. After de-recognition of the exchange, its members will be de-registered as stock brokers, the market regulator said.