April 20, 2024

Lukmaan IAS

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T+0 SETTLEMENT CYCLE IN INDIAN SECURITIES MARKET

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TAG: GS 3: ECONOMY

THE CONTEXT: In a significant move to enhance efficiency and flexibility in the Indian securities market, the Securities and Exchange Board of India (SEBI) introduced the T+0 settlement cycle.

EXPLANATION:

  • This initiative aims to streamline processes, reduce settlement times, and provide various benefits to investors and the market ecosystem.
  • SEBI issued operational guidelines for the introduction of the T+0 settlement cycle, which was launched initially on an optional basis for a select group of securities and brokers.

T+0 trading settlement cycle:

  • The capital markets regulator SEBI proposed to introduce a facility for clearing and settlement of funds and securities on T+0 (same day) on an optional basis, in addition to the existing T+1 settlement cycle.
  • The regulator has also proposed to introduce optional instant settlement at a later stage.
  • Under the T+0 trade cycle, the settlement of trades will happen on the same day after the closure of the T+0 market.
  • If investors sell a share, they will get the money credited to their account the same day, and the buyer will also get the shares in their demat account on the very day of the transaction.
  • Initially, the T+0 settlement cycle was introduced for a select group of 25 securities, including prominent companies such as Ambuja Cements Ltd, Bajaj Auto Ltd, Cipla Ltd, and State Bank of India, among others.
  • These securities were chosen to pilot the T+0 settlement cycle, with plans for potential expansion in the future.
  • All investors are eligible to participate in the T+0 settlement cycle provided they meet the prescribed timelines, processes, and risk requirements outlined by Market Infrastructure Institutions (MIIs).
  • This inclusive approach aims to ensure broad access to the benefits of same-day settlement while maintaining prudent risk management standards.

Trading Timings and Price Band

  • During the optional T+0 settlement cycle, trading occurs within a single continuous session from 09:15 AM to 1:30 PM.
  • Settlement of funds and securities is completed on the same day by 4:30 PM.
  • Price bands in the T+0 segment operate with a range of +100 basis points from the price in the regular T+1 market, with recalibration after every 50 basis points movement.

Benefits of T+0 Trade Settlement

  • The T+0 settlement cycle offers several advantages for investors and the securities market ecosystem:
    • Cost and Time Efficiency:
      • By enabling same-day settlement of trades, investors can realize cost savings and expedite the deployment of capital, leading to greater efficiency in the market.
    • Transparency in Charges:
      • The shortened settlement cycle promotes transparency in charges levied on investors, enhancing trust and confidence in the market infrastructure.
    • Risk Management Enhancement:
      • The move towards T+0 settlement strengthens risk management practices at clearing corporations and across the securities market.
      • Trades are backed by upfront funds and securities, mitigating counterparty risk.
    • Flexibility and Control:
      • Investors gain greater control over their funds and securities with faster pay-out mechanisms.
      • This flexibility empowers investors to manage their portfolios more effectively.
    • Market Efficiency:
      • By freeing up capital and reducing settlement times, the T+0 settlement cycle enhances overall market efficiency, facilitating smoother operations and trading activities.

Securities and Exchange Board of India (SEBI):

  • SEBI is a statutory body established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
  • The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.
  • Before SEBI came into existence, Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.
  • Initially SEBI was a non statutory body without any statutory power.
  • The headquarters of SEBI is situated in Mumbai. The regional offices of SEBI are located in Ahmedabad, Kolkata, Chennai and Delhi.

SOURCE: https://indianexpress.com/article/explained/explained-economics/t0-settlement-cycle-9236796/

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