Buying And Selling Trade In Stock Markets To Settle In 1 Hour Soon! Here's What Sebi Is Planning

In the coming months, your transactions of buying and selling of equities may not take 1 day to settle but rather just an hour. In a major good news for traders, SEBI is mulling to adopt a one-hour settlement cycle by as early as March 2024, and further to instantaneous settlement by October of the same year. This was revealed by the watchdog's chief Madhabi Puri Buch at the Global Fintech Fest 2023.

On the sidelines of the Global Fintech Fest 2023, she told reporters that the technology for implementing the one-hour settlement cycle already exists. Adding she said, the industry is working on a new technology for instantaneous settlement.

Directed by Sebi, stock exchanges introduced a T+1 settlement cycle from January 01, 2022, on any of the securities available in the equity segment. T+1 settlement cycle was introduced in a phased manner accordingly.

Apart from equities, other securities that transitioned to T+1 cycle are close-ended mutual fund schemes, debt securities, Sovereign Gold bonds (SGB), government securities, Treasury bills (T-Bill), State Development loans (SDL), Real estate investment trusts (REITs), Infrastructure investment trusts (InvITs); and finally, all other existing securities trading in normal segment or trade for trade segment and not covered under the above points such as exchange-traded funds (ETFs), depository receipts (IDR), etc.

What is the T+1 settlement cycle? For all trades executed on the T day, exchanges determine the provisional cumulative obligations of each member on the T day and electronically transfer the data to Clearing Members (CMs). All trades concluded during a particular trading date are settled on a designated settlement day i.e. T+1 day.

Furthermore, to Buch, for the secondary market, the ASBA-like settlement mechanism is expected to go for pilot testing in December 2023 and it will be running in January 2024.

Also, Buch revealed that the regulator is strengthening its systems to deal with broker and exchange or clearing corporation (CC) failures.

When all securities were transitioned to T+1, the move of shortening the settlement cycle was expected to bring in capital efficiencies to the investors and improve risk mitigation for the entire industry. After China, India became the second country to adopt the T+1 settlement, because the majority of stock exchanges in developed countries and emerging markets still follow the 'T+2' settlement cycle.

The trade settlement from T+1 to one hour will be yet another significant move for Indian markets.