The Securities and Exchange Board of India (SEBI) has initiated a significant shift in the Indian stock market by launching the beta version of the T+0 settlement cycle, slated to start on March 28. This new system will allow trades to be settled on the same day they are made, a move aimed at enhancing market efficiency and expediting the settlement process.
Understanding T+0 Settlement
Traditionally, the Indian stock market operated on a T+1 settlement cycle, where "T" represents the transaction day, and "1" indicates that the settlement occurs one day after the transaction. With the T+0 settlement cycle, the framework is shifting towards settling trades on the transaction day itself, providing liquidity to investors more swiftly and potentially improving the overall trading experience.
Details of the Beta Launch
The beta version of the T+0 settlement cycle will initially encompass a selected list of 25 stocks and will be available to a limited set of brokers. This cautious approach allows SEBI to monitor the system's performance and make necessary adjustments before a broader implementation. The introduction of T+0 settlement is anticipated to free up capital for investors by providing immediate liquidity, thereby enhancing market efficiency and risk management.
Operational Insights
In this beta version, trading in the T+0 segment will occur in one continuous session from 9:15 AM to 1:30 PM. However, the prices within the T+0 settlement cycle will operate within a plus or minus 100 basis points range from the regular T+1 market prices.This band will be adjusted following every 50 basis points movement in the T+1 market. Notably, all investors can participate in the T+0 settlement cycle, provided they meet specific timelines, processes, and risk requirements.
Surveillance and Regulation
SEBI has assured that the surveillance measures applicable in the T+1 settlement cycle will extend to the T+0 cycle as well, ensuring a robust regulatory framework. Additionally, T+0 prices will not influence index calculation and settlement price computation. There will also be no netting of obligations between the T+1 and T+0 settlement cycles, underlining the distinct nature of transactions under the new system.
Future Prospects and SEBI's Strategic Approach
While the initial beta version limits its scope to 25 shares, SEBI has outlined plans for a comprehensive review at the end of three and six months from the date of implementation. This review will help determine the future course of action and potential expansion of the T+0 settlement to a broader array of stocks. The phased approach, starting with a selective list and planned expansions based on beta results, signifies SEBI's careful consideration of market dynamics and stakeholder feedback.
Conclusion
The launch of the T+0 settlement cycle's beta version marks a pivotal moment in Indian financial markets, aiming to bring about greater liquidity and efficiency. As SEBI navigates through the initial phase with a focused set of stocks and brokers, the financial community eagerly anticipates the outcomes and potential expansions of this initiative.This move not only represents a significant shift in trading and settlement paradigms but also reinforces India's position in aligning with global best practices in financial transactions.
