 "How Sebi's trial run of same-day settlement for 25 stocks impacts you")
There's some good news for investors. Market regular Sebi is looking to move towards a "T+0" settlement cycle. Currently, settlements (when you receive or deliver the stocks/bonds you buy/sell) happen on T+2 (two days after the trade). With T+0, things speed up – settlements could happen on the same day as the trade! This means faster access to your money and potentially smoother transactions. However, this is still under testing and might take some time to implement fully.
Imagine you buy a stock on Monday. Currently, the official transfer of that stock to your account and the seller receiving the money (settlement) happens two days later, on Wednesday (T+2). The regulator is now exploring a new system called T+0 settlement. Here, "T" stands for "trade day." With T+0, if you buy a stock on Monday, the transfer and payment could happen on the same day, Monday itself! But there is a catch:
The trial run: In a move aimed at increasing liquidity in the market, Sebi will launch the beta version of the T+0 settlement on an optional basis from March 28, 2024.
Same day settlement, or T+0, would be launched for only 25 stocks and with a limited set of brokers to test the efficacy of a shorter settlement cycle. It has decided to hold off on launching same-day settlement for all stocks right away. They'll review the results of a test with 25 stocks to see if it's a good idea to expand it further.
The regulator will review progress at the end of three and six months before deciding on a further course of action. Think of it like a trial run before a big movie release. If everything goes smoothly, T+0 could be rolled out more widely.
SebiI shall continue to do further stakeholder consultation, including with the users of the Beta version. The Board shall review the progress at the end of three months and six months from the date of this implementation, and decide on further course of action,” said the regulator.
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How does this help you?
"T+0 settlement would help free up brokers' own funds within the system, thus reducing the overall cost of doing business. Currently, if a client sells shares the amount is credited in the trading account instantaneously. The client is free to trade with this capital or buy further delivery. On the exchange side, this fund gets credited to the broker only after settlement on T+1. With T+0 settlement the funds would be received by 4:30 pm thus freeing up brokers capital involved in the business," said Shrey Jain, Founder & CEO, SAS Online - a deep discount stock broker.
- Faster access to your stocks: If you ever need to sell your stocks quickly, T+0 would allow you to get your money back (settlement) much faster.
- Potentially smoother market: A faster settlement system could make the whole stock market work more efficiently, which might benefit investors in the long run.
- Immediate trade execution: T+0 settlement would allow investors to benefit from immediate trade execution and settlement, providing them with improved flexibility to capitalise on short-term trading opportunities and market fluctuations. Investors can react quickly to market developments, execute trades promptly, and optimise their investment strategies in real-time.
In December, the regulator proposed a phased rollout of optional same-day settlement and last week said it wants it to launch by the end of March.
The history:
Until now the Indian securities markets have been operating on a T+1 settlement cycle. The regulator had shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003. It introduced T+1 in 2021 and implemented in phases, with the final phase completed in January 2023.
Point to note: The T+0 on the selective stocks is an optional choice. You could still choose the traditional T+1 settlement if that works best for you. This proposal is still under discussion, so it might take some time before you see these options available.