Sebi pitches instant equity settlements
NEW DELHI/MUMBAI: India took a step a closer to instant settlements in share trading on Friday, with the stock market regulator proposing it as an option in addition to the existing Transaction+1 (T+1) settlement cycle. Market participants said retail investors making delivery-based trades stand to benefit if the proposal in the regulator’s consultation paper makes it to the final stage, since they will receive proceeds instantaneously. This would be especially beneficial for investors selling shares since they will immediately receive money, which can be reinvested elsewhere.
Buyers too will receive shares immediately, allowing them to pledge the shares and raise capital for further trading. Currently, all share transactions in stock markets are settled on a T+1 basis; shares are credited to the buyers’ demat account and money credited to the seller’s bank account a day after the transaction. The Securities and Exchange Board of India (Sebi) said in the consultation paper that the proposed framework will be implemented in two phases: in the first phase, market participants will be offered T+0 settlement, which means investors receive their payouts by the end of same trading session.
In the second phase, the settlement time will be instantaneous. However, no client code modifications will be permitted in the second phase since trades are instantly settled, and hence, orders cannot be altered. Market participants can provide their feedback to Sebi on these proposals by 12 January.
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