No Need To Wait! Get Money In Your Account Soon After Shares Are Sold, Know What The SEBI Proposal Says

Market regulator Securities and Exchange Board of India (SEBI) has now come up with a new proposal, which is seen to be beneficial for investors. Once this proposal is implemented investors will be able to do the final settlement on the same day when shares are sold. This means you will not have to wait for an extended period but the money will come into your bank account immediately after the shares are sold.

On Friday, SEBI released a consultation paper on the introduction of the optional T+0 settlement cycle and instant settlement cycle and has sought comments.

The market regulator proposed the implementation of instant trade settlement in two phases.

In phase 1, SEBI has proposed an optional T+0 settlement cycle for trades till 1:30 pm, with the settlement of funds and securities to be completed on the same day by 4:30 pm.

In phase two, an optional immediate trade-by-trade settlement for funds and securities may be carried out. In the second phase, trading will be carried out till 3.30 pm, the consultation paper said. After the implementation of phase 2, phase 1 (optional T+0 settlement) will be discontinued, the paper said.

Recently, Sebi chief Madhabi Puri Buch reportedly said the capital markets regulator is ready to introduce same-day settlement of trades on the stock exchanges by March 2024.

Speaking at the Global Economic Policy Forum 2023 organized by the Confederation of Indian Industry (CII), Buch said, "We are ready to introduce T+0 (T plus zero) settlement trade by the end of the current fiscal".

Over the last few years, Indian securities markets has seen tremendous growth, both in terms of volumes, value, as well as number of participants. This increase in the participation of new investors in the securities market puts a greater onus on SEBI to make markets more efficient and safer for its participants, with a special focus on retail participants.

SEBI, in its endeavor 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.
In addition to the existing T+1 settlement cycle, a shorter settlement cycle may be introduced as an option.

Features of T+0 and Instant Settlement Mechanism

It is observed that a high percentage of retail investors bring upfront funds and securities before placing an order. For the period June 2023, for around 94% of delivery-based trades with a value up to Rs 1, 00,000 per transaction, investors made early pay-ins of funds and securities.

An instant settlement mechanism:

i. Enables instant receipt of funds and securities, vis-a-vis existing pay-out on T+1 day.

ii. Eliminate the risk of settlement shortages, since both funds and securities will be required to be available before placing the order. This also eliminates the risk for market participants and reduces the risk exposure of Clearing Corporations (CCs).

iii. Strengthens investor protection by enhancing the control of the investor over the securities and funds as funds and securities would be credited into the client's account directly for those who are trading through blocked amounts using the UPI facility ("UPI Clients").

iv. 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.

Benefits of the proposed mechanism

(A) For Clients

i. The option is expected to provide flexibility in terms of faster pay-out of the funds against the securities to the sellers and faster pay-out of securities against the funds to the buyers.

ii. The option will allow better control over funds and securities by the investors.

(B) For the Securities Market Ecosystem

i. A shorter settlement cycle will further free up capital in the securities market thereby enhancing the overall market efficiency.

ii. The option will enhance the overall risk management of CCs as the trades are backed by upfront funds and securities.

Potential Concerns of the Proposed Mechanism

Meanwhile, concerns raised over the implementation of this proposal include liquidity fragmentation and its impact on efficient price discovery.

Other concerns include an increase in the cost of trading, divergence in the price of the same security in the T+0 or instant settlement cycle, and T+1 settlement cycle, and increased impact cost in case of lack of liquidity in this segment.

SEBI held discussions with various stakeholders including Stock Exchanges (SEs), Depositories, Clearing Corporations (CCs), and stock brokers in the matter. A Working Group of SEs, Depositories, and CCs was formed in order to examine the feasibility of the introduction of a shorter settlement cycle and its associated legal, operational, technological, and market impact, etc. "For this purpose, the Working Group proposed implementation of the same in two phases - Phase 1: T+0 Settlement Cycle and Phase 2: Instant Settlement Cycle." said the consultation paper released by SEBI on Friday.