Leapfrogging the US and Canada, India is set to be the world’s fastest stock market in terms of settlement of equity trades.

Come January 27, all the blue-chip and large-cap stocks in India (constituting 80 per cent of market capitalisation) will be settled on T+1 (today plus one day) cycle. Simply put, if anybody bought a stock on Monday, it would be in their account on Tuesday. Globally, it takes at least two days to settle trades. The US and Canada, too, have plans for T+1 settlement.

When shares and cash start coming into accounts faster, experts said markets can see more volumes in the medium to long term. Particularly, the faster turnaround time is likely to ensure higher volumes in the cash markets.

Crossing obstacles

There was huge opposition to the move by the Asia Securities Industry and Financial Markets Association (ASIFMA), which warned that the different time zones between Europe/US and Asia-Pacific may lead to operational complexities for investors, particularly involving forex management. Other industry bodies such as the Association of Global Custodians (AGC) and the Investment Company Institute (ICI) had expressed concerns about potential difficulties.

But, SEBI’s move to get it implemented in a phased manner where few stocks would be added to the new settlement cycle each quarter gave enough time for foreign players to gear up.

Reducing risk

There is an appetite for faster settlement cycles in global financial markets since investors want their cash freed up as soon as possible, said experts. Particularly after Covid, everybody wants to mitigate settlement risk. A shorter settlement cycle also helps in limiting the systemic risk by reducing counterparty risk to each other.