Sebi Proposes Same-Day Trade Settlement: Key Details & Impact

New Delhi, Dec 22 (PTI) Capital markets regulator Sebi on Friday floated a consultation paper proposing to introduce same-day settlement of trades on stock exchanges and real-time settlement on an optional basis.

This is in addition to the existing T+1 settlement cycle in secondary markets for equity cash segment. Sebi, which has trimmed the settlement timelines to as short as one day after transaction, is looking to shorten the same further.

In its consultation paper, Sebi proposed introducing "the facility for clearing and settlement of funds and securities on T+0 and instant settlement cycle on optional basis in addition to the existing T+1 settlement cycle in secondary markets for equity cash segment".

T+0 would mean settlements on the same day and instant settlement would ensure that trades are settled immediately. Sebi, in its effort to keep pace with the changing times and carry out its mandate of development of securities markets and investor protection, shortened the settlement cycle to T+3 from T+5 in 2002 and subsequently to T+2 in 2003.

Further in 2021, T+1 settlement was introduced in a phased manner which was fully implemented from January 2023.

The Securities and Exchange Board of India (Sebi) has sought comments from the public till January 12 Sebi said that the instant settlement mechanism would enable instant receipt of funds and securities, and eliminates the risk of settlement shortages since both funds and securities will be required to be available before placing the order, and strengthen investor protection.

"Providing the option for instant settlement will help establish Indian equities as an asset class with the features of resilience, low cost and time for transaction, superior in all ways to emerging claimants of alternative asset classes," Sebi said.

On the other hand, Sebi said there are potential concerns as the new mechanism could lead to liquidity fragmentation and affect efficient price discovery; increase the cost of trading, as funds and securities need to be made available upfront before placing the orders; and result in divergence in the price of same security in T+0 or instant settlement cycle, and T+1 settlement cycle.

Mitigating the concerns, Sebi suggested that on liquidity fragmentation, there will be participants who can access both T+0 (or instant settlement) and T+1 markets and would bridge price and liquidity gaps between the two segments.

"Divergence, if any, that emerges between the T+0 / instant settlement cycle and T+1 settlement cycle may be bridged by the arbitrageurs thereby allowing for liquidity and effective price discovery in both segments," it added.

In November, Sebi chairperson Madhabi Puri Buch said that Sebi is aiming to introduce same-day settlement of trades on stock exchanges by March 2024 and eventually have a real-time settlement.