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An impressive move from SEBI on instigating T+0 settlement day
T+0 settlement day starts from March 28 on an optional basis, says SEBI Chairperson Madhabi Puri Buch.
Firstly, let us understand what settlement is:
If you purchase shares on a T (Trade) day (let’s say – Monday), the shares are credited to your demat account on the next day (i.e.) on a Tuesday – T+1.
In a simpler term, let us assume you buy Apples on Monday on an online site. You get delivered the next day (i.e.) Tuesday. This is the T+1 settlement cycle.
What is the T+0 settlement cycle?
This settlement cycle ensures trades will be settled on the same day, while instant settlement would ensure that the settlement of securities and funds happens immediately.
E.g. If a person holds an ABC stock at Rs. 100. and sells it at Rs.200 on a trading day, he/ she will be able to get the cash profit of Rs.100 on the same day in their trading account. Currently, if the trades are settled, we will get the cash settlement the next day.
What are the new implementation plans around this T+0 settlement cycle?
The press release said, “The Board approved the launch of a Beta version of optional T+0 settlement, for a limited set of 25 scrips, and with a limited set of brokers. In parallel, SEBI shall continue to do further stakeholder consultation, including with the users of the Beta version. The Board shall review the progress at the end of three months and six months from the date of this implementation, and decide on further course of action.”
How was the previous settlement cycle?
Historically, the settlement cycle was around T+5 days before 2002 and it was made to T+3 settlement days in 2002 and T+2 in just a year around 2003. T+1 was introduced 2 years back in 2002 in a phased implementation and was fully implemented in January 2023.
Why was this move made?
The rise in a faster settlement cycle helps in efficient liquidity management by enabling investors to access funds and securities immediately after trade execution. also, This allows them to reinvest proceeds or deploy capital into new opportunities. This move is also made to offer a competitive advantage over other rising instruments like cryptocurrencies. The main aim is to ensure that regulated markets are competitive and offer the same advantage to investors.
When does this settlement cycle start?
In the first phase, an optional T+0 settlement cycle for trades till 1:30 pm is envisaged, with the settlement of funds and securities to be completed on the same day by 4:30 pm.
In the second phase, an optional immediate trade-by-trade settlement will be carried out for trades till 3.30 pm.
Advantages of this settlement cycle:
This settlement cycle ensures trades are settled immediately bringing them cash on the same day. This central attractive feature will bring in more people who want to trade and earn money relatively in a faster way. This could also spark the passion in the young generation to learn more about stock market trading to make them some passive income while they study or who have just started their career.
What’s next with this payment cycle?
The SEBI board will review the progress at an interval of three and six months to decide how it’s being received and will decide the further course of action.
Competitive settlement cycle:
India now stands proudly at the top alongside China for having a T+0 settlement cycle.
Following are the settlement cycles for other countries, US, Canada, UK, Brazil, UK, Brazil, South Korea, Japan, Hong Kong, Indonesia, Switzerland, and Australia all have T+2 trade settlement dates. Meanwhile, South Africa has a T+3 settlement date.