Context: The Securities and Exchange Board of India (SEBI) is working to implement instantaneous settlements in secondary market trades, and is likely to complete the process next fiscal year.
What is a Settlement Process?
- The settlement refers to the official transfer of shares from the seller’s account to the buyer’s account.
Recent Developments
- Indian capital market regulator SEBI (Securities and Exchange Board of India) announced on Monday to move to T+1 settlement cycle for all scripts from 1st October 2023. This means effective from first October 2023, all trades will be settled one day after the date of trade instead of the current T+2 settlement cycle.
- Earlier, India was following T+2 settlement and has now adopted T+1 settlement.
- T+1 means that trade-related settlements must be done within one day of the transaction’s completion.
- Trades on Indian stock exchanges are currently settled in two working days after the transaction is completed (T+2). For example, if you buy shares on Wednesday, they will be credited to your Demat account by the next day, which is Thursday.
- Now, with the adoption of (T+1) settlement, the trade gets settled within one day.
Significance
- Most large stock markets, like in the US, Europe, Japan, still follow the T+2 settlement cycle of trade settlement. India has now become the second country after China to go for T+1 settlement.
- The move is expected to increase volume in the cash segment as one would be able to move from one stock to another on the same date instead of waiting for settlement of one’s trade after one day or two days.
- Instant settlement would also mean that one won’t be able to trade if they have no money available in their demat account. This is a positive development for the brokerages as their risk management to contain chances of fraud or default would go down after this move.
