Sebi has decided to shorten the trade settlement cycle despite strong resistance from some stakeholders in the stock market. The regulator has initiated the process of reducing the settlement cycle to T+1 from T+2 system for all stocks in the cash segment. However, Sebi has given stock exchanges the liberty to start it on an optional basis in scrips of their choice. The change is effective January 1, 2022, a circular from the regulator said.
On April 1, 2003, the Indian market had moved to the T+2 settlement cycle from T+3 cycle. Currently, most markets around the world follow the T+2 system.
“Sebi has been receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with market infrastructure institutions (MIIs — 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 circular from the regulator said.
Accordingly, an exchange may offer T+1 settlement cycle on any scrip after giving a month’s notice about the change, it said. However, Sebi said that once an exchange decides to shift a scrip to T+1 cycle, it has to continue for at least six months. If it decides to switch back the scrip to T+2 cycle, it should give at least a month’s notice.
Once a stock is moved to the T+1 cycle on an exchange, this will apply to all types of transactions on that bourse. It means for all trades — whether it’s a regular, small trade by a retail investor or a block deal by a large institution — settlement has to be under the T+1 cycle on the exchange.
Sebi has directed all the MIIs to take necessary steps to put in place proper systems and procedures for smooth introduction of the T+1 settlement cycle.
Last week, the Association of National Exchanges Members of India (Anmi) — a pan-India brokers’ body — had written to Sebi to not introduce the T+1 settlement cycle. According to Anmi, for the smooth running of such a system, there could be operational and technical challenges at several levels, including banks, brokers’ back offices, depositories and other bodies involved in the trading, settlement and post-settlement processes.
Industry sources, however, said that under the T+1 cycle, tech-driven discount brokerages will be at an advantage over those that are yet to embrace technology in a big way for regular operations. Anmi is dominated by traditional brokers.