The country's leading depository, National Securities Depository Ltd (NSDL), will give its report on how to adopt delivery versus payment (DVP) system, within one month.
Adoption of DVP would ensure that delivery of securities and payment in the secondary market, occur at the same time, and there is no time gap in the transfer of assets.
The market regulator, Securities and Exchange Board of India (Sebi) had asked NSDL at its meeting on May 24, to prepare a paper on what measures can be adopted to implement DVP in the Indian capital markets.
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Sebi is also mulling over introducing a system which will address the problem of delays in application, issue and refund in initial public offerings (IPOs).
"The work on DVP has already begun. We are examining various international practices including giving depositories limited banking powers, and will give our report on which system will suit the Indian markets the best, within a month," C B Bhave, managing director, NSDL, said.
"DVP is a standard practice in all leading markets in the world. It takes away investors' fear of having assets locked in," Bhave said.
It was suggested at the Sebi meeting on May 24, that depositories be given limited banking powers as a measure to implement DVP. "That's one of the many ways that we are considering. Adoption of that would mean that the idea has to ratified by various other statutory authorities like the Reserve Bank and the Govt of India," Bhave added.
Bhave also said, "We want to introduce the system as soon as possible. But then it could take us some time to get things cleared by the authorities if such is required, and also to convince people that it is in the best interest of everyone."
The initiative on DVP comes in line with the market regulator's intention of making dematerialized trading compulsory for all scrips.
The system to reduce share application delays, propounded by Bhave, will link registrars to IPOs with banks. An applicant will not have to pay upfront as is the case now, and instead will have the amount of application frozen in his bank account. There will be no transfer of funds till applications are made, and hence no refund if applications are unsuccessful.