Same-day settlement of trades: FPIs raise liquidity concerns, says report

livemint.com:

same-day settlement, or T+0 of trades, foreign portfolio investors (FPIs) have raised concerns, stating that this may fragment market liquidity or trading volumes, reported Business Line. Consequently, they have sought more time for suggestions on viable alternatives given the year-­end holiday season, said two people in the know, as per the report. The Securities and Exchange Board of India (Sebi) has proposed a phase wise transition to instant settlement of trades in the equity cash market and sought feedback by January 12, it said.

The first phase will see T+0 settlement for top 500 listed shares in three tranches from the lowest to highest market capitalisation, added the report. Trades till 1:30 pm will be settled on the same day by 4:30 pm, according to the consultation paper released last month, highlighted the report. T+0 settlement will be optional for retail investors but will not be applicable for institutional investors.

This means that the same security may trade in two different segments: T+0 and T+1, according to the report. “So, when retail investors want to sell the securities there may not be institutional buyers available; similarly, when FPIs want to sell, there may be few or no retail buyers available as they would want to settle on T+0," said BL. For T+0 or instant settlement, pre­funding of both cash and securities will be needed, according to experts.