Note4Students
From UPSC perspective, the following things are important :
Prelims level: One-Hour Trade Settlement, T+1 Settlement Cycle
Mains level: NA
Central Idea
- SEBI aims to implement a One-Hour trade Settlement by March 2024.
- Additionally, an Application Supported by Blocked Amount (ASBA)-like facility for secondary market trading is anticipated to launch in January 2024.
Do you know?
India is the first jurisdiction in the globe that has moved to T+1 settlement (trade plus one day). We are now talking about one-hour settlement and that will be a stepping-stone to instantaneous settlement.
Understanding Trade Settlement
- Trade settlement involves the exchange of funds and securities on the settlement date.
- It is considered complete when purchased securities are delivered to the buyer, and the seller receives the funds.
- India transitioned to a T+1 settlement cycle earlier this year, facilitating faster fund transfers, share deliveries, and operational efficiency.
SEBI’s Stance
- SEBI believes that achieving instantaneous trade settlement will take additional time due to necessary technology development.
- Therefore, SEBI plans to implement a one-hour trade settlement before the instantaneous settlement.
- SEBI expects instantaneous trade settlement to be launched by the end of 2024.
Benefits of One-Hour Trade Settlement
- In the current T+1 settlement cycle, the seller receives funds in their account the day after a trade.
- With one-hour settlement, the seller would receive funds within an hour of selling shares, and the buyer would have shares in their demat account within an hour.
Back2Basics: T+1 Settlement Cycle
- The T+1 settlement cycle means that trade-related settlements must be done within a day, or 24 hours, of the completion of a transaction.
- For example, under T+1, if a customer bought shares on Wednesday, they would be credited to the customer’s demat account on Thursday.
- This is different from T+2, where they will be settled on Friday.
- As many as 256 large-cap and top mid-cap stocks, including Nifty and Sensex stocks, come under the T+1 settlement.
- Until 2001, stock markets had a weekly settlement system.
- The markets then moved to a rolling settlement system of T+3, and then to T+2 in 2003.
- In 2020, Sebi deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.
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