Sebi has proposed T+1 settlement cycle from January 1

Mumbai: India is set to shorten the settlement cycle for share transactions.

The Securities and Exchange Board of India has proposed a ‘Trade-plus-one’ (T+1) settlement cycle from January 1, where the trades will get settled the day after the transaction. Initially, exchanges can pick the stocks where they want to offer the next-day settlement.

Under T+1, the buyer would get the shares in the Demat account and the seller the sale proceeds the day after the trade. Currently, trades are settled two working days after execution. The step will make India among a handful of countries that have adopted the shorter settlement cycle.

Sebi said in a circular on Tuesday that stock exchanges may choose to offer the T+1 settlement cycle on any of the stocks, after giving a notice of at least one month on the change to all stakeholders.

After opting for the T+1 cycle for a scrip, the stock exchange must continue with it for a minimum of six months.

Thereafter, the bourse can switch back to T+2 by giving a one-month notice to the market.

“Any subsequent switch (from T+1 to T+2 or vice versa) shall be subject to minimum period and notice period. There shall be no netting between T+1 and T+2 settlements,” Sebi said in the circular.

The regulator also said the new settlement option would be applicable to all types of transactions (regular as well as block deals) in the chosen security on that stock exchange.

Most global markets follow the T+2 settlement process. India switched to T+2 from T+3 in 2003.

While retail investors and brokers have supported the shortened settlement cycle, it has been opposed by foreign portfolio investors (FPIs) due to time-zone differences and an increase in operational cost.

After an expert panel submitted its report to Sebi last month, an FPI lobby body was planning to make a representation to the regulator, said a person familiar with the matter.

ET was the first to report, in its edition on August 28, that an expert panel had suggested that stock exchanges be given the discretion to introduce a T+1 settlement cycle.

“Many FPIs in other time zones feel this will become a pre-funded market and this will raise the cost,” the person cited earlier said.

Market participants said even if the proposed switch to T+1 is left to the discretion of exchanges, it could once again fuel the old rivalry between the BSE and the NSE.

For decades, changes in the settlement cycle have been a contentious issue in the stock market, dividing powerful lobbies and bourses.

The Sebi order on T+2 was issued in 2003 under the then chairman GN Bajpai. While this was a long way from the days of the 1992 stock market scam when exchanges followed a fortnightly settlement, T+2 came at a time when neither investors nor the banking system was geared up for a faster settlement. While it had pushed the Reserve Bank of India to work on the Real Time Gross Settlement System (RTGS), it had institutionalised a flawed practice under which brokers took ‘power of attorney’ from investors and traders to meet the stricter deadline under T+2.

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