SEBI’s T+0 settlement: With the advent of T+0 trade settlement, the Indian stock market is on the verge of a significant transformation. In this article, we’ll delve into the implications of this new SEBI guideline and its effects on various stakeholders in the market.
Table of Contents
Evolution of Settlement Cycles
To comprehend the significance of T+0, let’s revisit the evolution of settlement cycles in India’s stock market. The journey began with a T+14 cycle before reforms following the Harshad Mehta scam. It was shortened gradually to T+1 in January 2023. Notably, India is poised to become the only country operating on a T+0 settlement cycle, positioning it ahead of major global markets like the US and China, albeit the US aims to transition to T+1 by March 2024.
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Impact on Retail Traders
For retail traders, SEBI’s T+0 trade settlement brings immediate access to margins. Previously, waiting for funds from a sold share often hindered new investment opportunities. With T+0, the money from a sold share is available instantly, empowering traders to swiftly reinvest, enabling more agile decision-making and increasing market liquidity.
T+0 substantially reduces counterparty risk. With settlements occurring on the same day, the window for fraudulent activities diminishes significantly. Both the buyer and seller fulfill their obligations promptly, mitigating the risk of potential fraud.
While T+0 offers advantages for traders, it poses challenges for market infrastructure entities like Clearing Corporations, CDSL, and NSDL. These organizations handle trade settlements, and the transition demands increased efficiency and accuracy to manage the higher frequency of same-day settlements.
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Impact of SEBI’s T+0 settlement on Foreign Investors
Foreign entities investing in the Indian market, such as Foreign Institutional Investors (FIIs), face complexities due to currency conversions and operational adjustments necessitated by shorter trade settlement cycles. The shorter settlement period might require them to adapt swiftly to the new operational paradigm.
There are speculations about further reducing settlement times to instant settlement by October 2024. However, such initiatives are in the planning stages, showcasing the market’s potential for even more rapid and efficient settlement mechanisms.
Disclaimer:
The above content provided regarding SEBI’s T+0 trade settlement in this web post is for informational purposes only and should not be construed as financial advice. Readers are encouraged to consult with financial professionals before making any significant financial decisions.
