T+0 trade settlement in India soon: Why it matters
India is on the brink of a stock trading sector revolution with the introduction of the T+0 trade settlement cycle. The Securities and Exchange Board of India has declared that a beta version of the same day business settlement will be initiated for select group of stocks and brokers. This development places India as the only country after China to adopt such a swift settlement cycle, in contrast to the two-day period prevalent in most other major economies.
The potential upsides of T+0 trade settlement in India
The shift toward T+0 trade settlement is anticipated to yield numerous advantages. Rakeshh Mehta, chairman of Mehta Group - Mehta Equities, emphasized that this transition could notably diminish counterparty risk and boost market efficiency by facilitating rapid exchanges between buyers and sellers. Furthermore, the new system could significantly cut down operational costs for market participants and ease the funding expenses brokers currently bear.
T+0 settlement: A catalyst for brokers and liquidity
Shrey Jain, founder & CEO of SAS Online, suggested that T+0 settlement could liberate brokers' funds within the system, thereby reducing overall business expenses. Moreover, instant settlement is predicted to augment market liquidity by motivating investors to liquidate stocks and transform them into cash on the same day. This modification also aims to lessen the risk that investors encounter in case of default or delay by the seller.
Obstacles in implementing T+0 trade settlement
Despite its potential advantages, implementing the T+0 settlement system won't be without its hurdles. As per experts, this change would require an extensive revamp of existing market infrastructure, systems, and processes which could involve intricate and potentially expensive alterations. There are also apprehensions that a shorter settlement cycle could escalate market volatility.
T+0 settlement: Propelling India toward global standards
The rollout of the T+0 settlement system marks a significant stride toward aligning India with international financial market norms. Nations such as Russia, South Korea, Taiwan, and Hong Kong have already embraced this system for specific securities. Gagan Singla, MD of BlinkX by JM Financial, interprets this move as a manifestation of India's dedication to progressing its financial landscape.
Market participants' reaction to T+0 settlement transition
As India gears up for the transition to T+0 settlement, market participants are displaying a mix of optimism and caution. Atul Parakh, CEO of Bigul, expressed that this transformative shift necessitates a proactive stance from market participants to smoothly adapt to the revised settlement timelines and protocols. Despite recognizing the complexities and challenges ahead, participants are eagerly awaiting the potential benefits of this system.
The future trajectory of T+0 settlement in India
SEBI intends to assess the progress of the T+0 settlement system after three months and six months before deciding on subsequent steps. While it's premature to forecast the long-term impact, market participants are keenly observing whether this new system will prove advantageous and fruitful for India's trading sector. SEBI seeks to transition from current T+1 settlement to an optional T+0 settlement. Eventually, it will allow instant settlement within an hour of the trade.
Foreign portfolio investors not impressed
Despite India's stock market being on the cusp of a major advancement, foreign portfolio investors have expressed their reservations about same day payments regime. They believe that such a transition will pave way for liquidity concerns. Asia Securities Industry and Financial Markets Association (ASIFMA) warns that the decision can fragment market volumes due to the existence of two settlement cycles.
Understanding India's trade settlement cycles
Basically, SEBI's present T+1 process entails payment settlement within 24 hours of trade, while T+0 settlement allows transaction by 4:30 pm on same day. The initial launch of same day settlement involves optional T+0 settlement. It is expected to help institutions align with shorter settlement cycle.
