Introduction of Beta Version of T+0 Settlement Cycle
In a bid to enhance efficiency, transparency, and risk management in India’s securities market, the Securities and Exchange Board of India (SEBI) has introduced the Beta version of T+0 rolling settlement cycle on an optional basis, alongside the existing T+1 settlement cycle. This move, announced through Circular No. SEBI/HO/MRD2/DCAP/P/CIR/2021/628 dated September 07, 2021, marks a significant step towards leveraging technological advancements and bolstering market infrastructure institutions (MIIs).
Evolution of Settlement Cycles: The journey towards shorter settlement cycles began with SEBI’s approval for the introduction of the T+1 rolling settlement cycle. All MIIs, including stock exchanges, clearing corporations, and depositories, collaborated to implement this change, which became fully operational from January 27, 2023. This transition reflected the evolving landscape of technology and the robustness of India’s depository ecosystem, which facilitates seamless transfer of securities and funds in real-time.
Benefits of Shortened Settlement Cycles: Shortening the settlement cycle offers several advantages. Firstly, it enhances cost and time efficiency, reducing the burden on investors and market participants. Secondly, it fosters transparency in charges, ensuring that investors have a clear understanding of the costs involved. Lastly, it strengthens risk management mechanisms at clearing corporations, thereby fortifying the overall securities market ecosystem.
Introduction of Beta Version of T+0 Settlement Cycle: Building on the success of T+1 settlement cycle, SEBI, after careful consideration and stakeholder consultation, has introduced the Beta version of T+0 settlement cycle on an optional basis. This initiative aims to further expedite clearing and settlement processes, thereby unlocking additional benefits for market participants.
Operational Guidelines: The operational guidelines for the Beta version of T+0 settlement cycle outline eligibility criteria for investors, surveillance measures, trade timings, price bands, netting obligations, and more. Notably, the price band in the T+0 segment operates with a margin of +100 basis points from the regular T+1 market price, ensuring stability while allowing for market dynamics.
Smooth Implementation: To ensure seamless implementation, MIIs will publish operational guidelines and FAQs on their respective websites. Additionally, they will disseminate information about participating brokers and provide regular progress reports on the Beta version of T+0 settlement cycle.
Future Considerations: SEBI remains committed to stakeholder consultation and will continue to gather feedback from users of the Beta version of T+0 settlement cycle. This iterative approach ensures that regulatory decisions align with market needs and facilitate sustained growth and development.
Let’s take a closer look at the older versions of rolling settlements:
India’s securities market has witnessed a remarkable evolution in its settlement cycles over the years. From the traditional T+2 settlement cycle to the recent introduction of the Beta version of T+0, each step has been aimed at enhancing efficiency, transparency, and risk management. This article delves into the journey from T+2 to T+1 and explores the implications of these changes on market participants.
The T+2 Settlement Cycle: Historically, India’s securities market operated on a T+2 settlement cycle, wherein transactions executed on a trading day were settled two business days later. While this system was the norm for many years, it posed challenges such as prolonged settlement times, increased counterparty risk, and higher capital requirements for market participants.
Transition to T+1 Settlement Cycle: Recognizing the need for expedited settlement processes and aligned with global best practices, the Securities and Exchange Board of India (SEBI) approved the transition to a T+1 settlement cycle. This decision, implemented in a phased manner and fully operational from January 27, 2023, marked a significant milestone for India’s capital markets.
Benefits of T+1 Settlement Cycle: The shift to T+1 settlement cycle brought about several benefits for market participants. Firstly, it reduced settlement times, enabling quicker turnaround of funds and securities. This, in turn, lowered counterparty risk and enhanced liquidity in the market. Secondly, it aligned India’s market infrastructure with international standards, making it more attractive to global investors.
Introduction of Beta Version of T+0 Settlement Cycle: Building on the success of T+1 settlement cycle, SEBI introduced the Beta version of T+0 settlement cycle on an optional basis. This innovative step aims to further expedite clearing and settlement processes, leveraging advancements in technology and market infrastructure.
Conclusion: The journey from T+2 to T+1 and the introduction of the Beta version of T+0 rolling settlement cycle represents a significant milestone in India’s securities market. By leveraging technological advancements and stakeholder collaboration, SEBI aims to enhance efficiency, transparency, and risk management, thereby fostering a conducive environment for investors and market participants to thrive. As the market evolves, SEBI remains steadfast in its commitment to safeguarding investor interests and promoting market integrity.
READ MORE: SEBI Board Meeting 15-March-2024: Key Decisions for Businesses and Investors.