T+1 hinges on RTGS adoption, says Bajpai

Indian bourses will have to a bit longer to graduate to the T+1 settlement.

Chairman of Securities and Exchange Board of India (Sebi), G N Bajpai, told Business Standard today that the T+1 settlement system can take off only after the real time gross settlement (RTGS) system is adopted by all commercial banks.

"The movement of funds will have to be seamless. Only after the RTGS is in place, we can firm up the roadmap for the T+1 settlement system on bourses," Bajpai said.

He refused to give any timeframe but banking sources said it may take about six months for the banking system to adopt RTGS. So far, 27 banks have signed up for RTGS.

While Sebi had set no firm date on when the markets could be on the T+1 settlement cycle, it was generally understood that it might happen as soon as straight through processing (STP) was in place. Bajpai iterated that market participants would be settling trades seamlessly through the STP from July 1.

He also said that a number of participants had already implemented STP voluntarily from June 1, this year. Commerical banks have yet to adopt real time gross settlement, which is a pre-requisite to a two-day settlement cycle, as funds have to move in and out seamlessly in the shortest possible time.

T+1 requires that both securities and funds should be able to move seamlessly between market participants at the click of a button, so that an order for a trade issued by the investor, travels with minimum manual intervention at every level and only terminates with the pay-in and pay-out of securities and funds.

At present, the STP has been implemented on a limited basis until the order confirmation stage but has not gone beyond as funds transfer cannot be factored into it.