The proposed equity trade settlement on the same day (T+0) is expected to create a new equity market within the market and provide arbitrage between the new and the current T+1 settlement cycle.

Brokers who are heavily dependent on interest income from client funds have to reassess their business models due to the reduced float period.

SEBI has recently issued consultation paper on ‘Introduction of optional T+0 and optional Instant Settlement of Trades’.

Initially, an optional T+0 settlement cycle for trades till 1.30 pm is envisaged, with settlement of funds and securities to be completed on the same day by 4.30 pm.

In the second phase, an optional immediate trade-by-trade settlement will be carried out for trades till 3.30 pm. The new settlement will be done in three tranches of 200, 200, 100 from lowest to highest market capitalisation.

Liquidity concerns

Bhavik Gandhi, Head-Operations, Mirae Asset Capital Market said there will be two settlements for the same script and liquidity could be a challenge for T+0 market as it depends solely on number of active participants in the said market.

The share price of the same stock will also wary in two different settlement counters as they would react to the prevailing demand and supply which would help arbitrageurs to take the gain of mispricing, he said.

Moreover, there are concerns of liquidity getting fragmented due to two settlement cycle and hence affecting the efficient price discovery besides pushing up the impact cost. The process could also increase the cost of trading, as funds and securities have to be made available upfront before placing the orders.

Shrey Jain, Founder and CEO, SAS Online – a deep discount broker said T+0 settlement in phase-1 will be an option and moving forward real time settlement will actually help free up margins in the system at broker level.

This initiative would garner momentum in phase-2 when real time settlement is implemented, he said.

Narinder Wadhwa, Managing Director, SKI Capital and President Commodity Participants Association of India said data must be examined to evaluate the percentage of investors who need the payout immediately and based on this outcome, separate solutions can be built to cater the demand instead of changes in broad market microsctructure.

The framework envisages early payout by mid-February and the second stage by November.

“Depositories have to expeditiously implement the API of real time Early Pay-in (EPI) Block. Else, it would be very difficult for members to complete the pay-in process. Stock traded prices in T+0 can influence the prices in the T+1 settlement cycle,” he said.

The expected low liquidity in the T+0 raises concerns on price manipulation and it can become a segment for execution of prearranged trades, he added.

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