SEBI Mulls Introducing T+1 Settlement Cycle

The Indian stock markets may soon see money and shares being transferred into clients’ accounts within 24 hours as the Securities and Exchange Board of India (SEBI) mulls introducing a T+1 settlement cycle for equities. At present, equity transactions happen in the T+2 cycle, requiring the clients to wait for up to 48 hours. 

At times, transactions and money transfers take over 48 hours, and the market regulator wants to bring this down to less than 24 hours. India will soon become the only country to function on a T+1 settlement cycle. In fact, SEBI had envisioned introducing the shorter settlement cycle a year ago, but it was not possible due to market disruptions caused by the ongoing COVID-19 pandemic. 

Stockbrokers have resisted the SEBI’s move as it requires changes in their technology and staffing, which may increase their operational costs. Foreign investors have also opposed the proposed new settlement cycle to ensure a smooth and successful overnight money transfer from their place of residence. 

Foreign investors believe that they will face challenges in money transfer. They must coordinate with numerous entities, including market players, custodians and sub-custodians, exchanges and clearinghouses, that operate from various counties and in different time zones. 

The introduction of the shorter settlement cycle is likely to put the existing systems under stress. Still, this move is expected to benefit the industry in the long run as a faster payment cycle will be a plus and would help brokers attract more customers. In fact, new-age discount brokers have been demanding a shorter settlement cycle for quite some time now. 

SEBI believes that shortening the settlement cycle will help reduce the overall risk. SEBI had asked depositories and brokers to carry out pledging shares and margin collection transactions via online platforms. The results have been favourable as the shares have moved in and out of the accounts within a few fours, making SEBI mull shortening the settlement cycle.

For any clarifications/feedback on the topic, don’t hesitate to get in touch with the writer at vineeth.nc@cleartax.in