Come March next year and investors will be able to trade in the Indian stock markets with a same-day settlement cycle, which means shares or money will be credited to the investor’s account on the day of the trade itself. 

This assumes significance as currently, India is already one of the fastest globally in terms of the settlement cycle with a T+1 mechanism in place. 

Sebi chairperson Madhabi Puri Buch, while addressing the media on Saturday, said that while the earlier plan was to first move to a one-hour settlement and thereafter to an instantaneous settlement cycle, market feedback suggests that same-day settlement cycle should be implemented first before moving to an instant one.

“We had said that we would move optionally to one-hour settlement and then move to instantaneous. Now what the market infrastructure and the brokers together have come back and told us is that the technology path that they need to take to get to instantaneous settlement will be much better if the first step we take is not a one-hour settlement but T+0. So, there is an in-between step that has undergone a change based on the consultation,” said Buch when asked about the progress made on the matter related to a shorter settlement cycle.

“Timeline roughly speaking I think for T+0 is before the end of this financial year so before March and then another one year from there to instantaneous,” she added.

The Sebi chairperson further clarified that the shorter settlement cycle, whenever implemented, would be a parallel system in existence with the current cycle and would be completely optional.

The settlement cycle refers to the period in which the shares or the funds are transferred to the investor’s account.

A shorter settlement cycle has a lot of benefits from an investor’s point of view as it allows a much more efficient use of capital.

Trading in the stock markets require margins – the money that needs to be blocked for buying shares – and any reduction in the settlement cycle will free up that amount of margin that can earn interest in the bank account.

This might not hold high significance for the small average retail investor, but for a heavy volume trader or a high net-worth individual (HNI), the margin amounts at stake could be significantly large and hence the interest income would also be huge.

Interestingly, a recent Sebi analysis showed that the annual benefit accrued to investors was around ₹700 crore as a section of the markets moved from T+2 to T+1 settlement cycle as the margin for one trade was freed much faster due to the shorter settlement cycle and the same funds could be used for another transaction.

Business Today