Stock markets in India may soon witness share and money transfers into the client account in less than 24 hours as market regulator SEBI is planning to usher in an era of T+1 (today plus one) settlement cycle for equity transactions.
Currently, in the T+2 cycle, it takes 48 hours or even 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. But soon India would be the only country to adopt T+1 settlement cycle.
Mixed response
SEBI has been looking to introduce T+1 settlement for more than a year but it did not move ahead with the plan due to the disruption caused by the pandemic. Also, stockbrokers and foreign investors resisted the move since it involves technology and staff-related changes, which could drive up their costs. Foreign investors are also concerned as they would have to ensure overnight money transfer to and fro from overseas destinations, sources said. Foreign investors say they require coordination among a number of market players, including custodians, sub-custodians, clearing members, and exchanges globally and in countries in different time zones.
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But Deven Choksey of KR Choksey Investment Managers, said traders will find this move highly convenient since it will make the rotation of money even faster. “It could be a boon for several large funds. The only short-term risk is that our current systems will be tested. But then it would be good if trade settlement is handled by custodians (institutions, banks) than the current practice of brokers doing it. A shorter payment cycle in business is always positive,” he said.
Discount brokers and online new-age tech trading firms have been pushing for a quicker settlement cycle. The tech-driven brokers are now betting that a cut in the settlement cycle will bring them more clients.
Sources said that the regulator believes that bringing down the settlement cycle could reduce risk once systems are in place. Recently, SEBI pushed brokers and depositories to conduct share pledging and margin collection related transactions through online platforms. For the past several months, shares have moved in and out of demat accounts in hours giving confidence to SEBI to further cut down the settlement cycle.