Central Idea

The Securities and Exchange Board of India (SEBI) has proposed introducing T+0 (same day) and instant settlement cycles in the equity cash segment, alongside the existing T+1 cycle.

Current Settlement Cycle

Evolution: SEBI shortened the settlement cycle from T+5 to T+3 in 2002, and then to T+2 in 2003. The T+1 cycle was introduced in 2021 and fully implemented by January 2023.
T+1 Cycle: Currently, the settlement of funds and securities occurs on the next day after the trade.

Phased Implementation: SEBI plans to introduce the shorter cycle in two phases: Phase 1 with T+0 Settlement and Phase 2 with Instant Settlement.
T+0 Settlement Details: In Phase 1, trades executed until 1:30 PM will be settled by 4:30 PM on the same day.
Instant Settlement Mechanics: Phase 2 envisages immediate trade-by-trade settlement, with trading continuing until 3:30 PM.

Initial Focus: Initially, the T+0 settlement will be available for the top 500 listed equity shares based on market capitalization, implemented in three tranches.
Surveillance Measures: The same surveillance measures applicable in the T+1 cycle will apply to the T+0 cycle. Trade-for-trade settlement securities will not be eligible for T+0.

Market Growth and Efficiency: With the significant growth in market volumes and participants, SEBI aims to enhance market efficiency and safety, especially for retail investors.
Technological Advancements: The evolution of payment systems like UPI and the sophistication of market infrastructure support the feasibility of shorter settlement cycles.
Investor Attraction: Faster transactions, reliability, and low costs are key factors that attract investors, making Indian securities a more appealing asset class.

Early Pay-In Trend: A large percentage of retail investors already make early pay-ins of funds and securities, indicating readiness for instant settlement.
Instant Receipt Benefits: The mechanism enables instant receipt of funds and securities, reducing settlement shortages and enhancing investor control.
Investor Protection: Direct crediting of funds and securities into investors’ accounts, especially for UPI clients, strengthens investor protection.

Flexibility for Clients: The new mechanism offers faster payouts of funds to sellers and securities to buyers, providing greater flexibility and control.
Market Ecosystem Advantages: The faster settlement cycle is expected to enhance the operational efficiency of the securities market, benefiting the entire ecosystem.