The Indian market will usher in same-day trade settlement starting Thursday. Initially, the ‘beta’ framework will be tested on only 25 stocks, including just three names from the Sensex components.JSW Steel, State Bank of India, Bajaj Auto, MRF, Vedanta, and Ambuja Cements are among the stocks where a separate same-day (T+0) settlement will be available for trades executed until 1.30 pm.
The move towards the T+0 settlement comes a little over a year after India fully implemented the T+1 settlement cycle and at a time when the US market has yet to fully transition to the T+1 settlement.
The same-day settlement framework will remain optional and run parallel to the current T+1 cycle in the equity cash segment. However, not all investors will be able to take advantage of the shorter settlement option as several brokers are not yet prepared.
Large brokers, including Motilal Oswal Financial Services and Axis Securities, have said that they will not offer T+0 from Thursday. Most other large brokers also mentioned that they are awaiting system readiness before offering the facility.
“This is an optional provision, so it is not binding for all brokers to implement it. Only very liquid stocks have been chosen so that there are no transaction problems, and spot buying does not affect the price of the particular scrip,” said Vijay Mehta, president, Association of National Exchanges Members of India.
In an earlier circular, the Securities and Exchange Board of India (Sebi) said that stock exchanges or depositories will disseminate the list of brokers participating in the beta version of the T+0 settlement periodically.
Additionally, they will provide a fortnightly report on the progress of the same.
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While foreign portfolio investors had raised concerns about liquidity fragmentation and submitted suggestions to the market regulator before it was approved in the board meeting held this month, Sebi Chairperson Madhabi Puri Buch said that they held deliberations with offshore funds to rationalise the benefits.
“All investors are eligible to participate in the segment for the T+0 settlement cycle if they can meet the timelines, processes, and risk requirements as prescribed by the market infrastructure institutions,” Sebi said in a circular issued earlier this month.
To ensure there is no fragmentation of liquidity, the price spread between T+1 and T+0 settlement will have to be narrow.
Sebi has said, “The price in the T+0 segment will operate with a price band of ±100 basis points (bps) from the price in the regular T+1 market. This band will be recalibrated after every 50 bps movement in the underlying T+1 market.”
According to the market regulator, the shorter cycle will help free up capital, allow clients to have better control of their funds and securities, and enhance risk management by clearing corporations.
“This development will increase liquidity for investors, allowing them to quickly enter into other trades without losing out on investment opportunities due to waiting periods. Additionally, the new system will reduce counterparty default risks,” said Samir Shah, head of online business, Axis Securities.
India moved to a T+3 (trade plus three days) settlement cycle from T+5 in 2002 and subsequently to T+2 in 2003. In 2021, the T+1 settlement was introduced in a phased manner, fully implemented from January 2023.