SEBI to allow T+1 settlement cycle on an optional basis from January 1

Stock markets in India can soon transfer shares and money into client accounts in under 24 hours with SEBI set to usher in an T+1 (today plus one) settlement cycle for equity transactions from January 1, 2022.

Now, it takes 48 hours or more for the shares to be transferred into the client account in case of purchase deals. This means a seller cannot demand payment for at least two days since India follows the T+2 settlement cycle.

Month’s notice

On Tuesday, SEBI said that a stock exchange may choose to offer T+1 settlement cycle on any scrip, after giving a notice of at least one month on the change to all stakeholders, including the public and also disseminating it on its website.

“SEBI has been receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with Market Infrastructure Institutions (stock exchanges, clearing corporations and depositories), it has been decided to provide flexibility to stock exchanges to offer either T+1 or T+2 settlement cycle,” the market regulator said.

A SEBIstatement said: “Stock exchanges, clearing corporations and depositories are directed to take necessary steps to put in place proper systems and procedures for smooth introduction of the T+1 settlement cycle on optional basis, including necessary amendments to the relevant bye-laws, rules and regulations.”

SEBI has been looking to introduce T+1 settlement for more than a year but was hampered by the pandemic. Discount brokers and online new-age tech trading firms have been pushing for a quicker settlement cycle. Most online stock brokers have very few staff as they rely on technology that enables contactless trading and settlement. Almost all trading, post-trading query and settlement of transactions by these brokers are done through mobile applications where clients punch their own trades and transfer money to various accounts at the click of a button.

Help money movement

Stock traders said that a shorter settlement cycle will be very highly convenient since it will make the money rotation faster.

Some issues, too

Nithin Kamath, CEO and Founder, Zerodha, said, “We are now amongst the first few countries to allow this. I guess what we will need to figure out is how settlements will work if one exchange adopts T+1 and the other is on T+2 when the same stock trades on both exchanges.”

The Association of National Exchanges Members of India had last month raised concerns over the T+1 settlement system. Several foreign brokerages also told SEBI that T+1 should not be implemented without addressing operational and technical issues.

The Asia Securities Industry and Financial Markets Association, expressing concerns over T+1 settlement cycle, said it will make India a pre-funding market for global institutional investors, especially those from the US and Europe.