‘T+0’ trade settlement in India to soon be a reality; all you need to know about it

Currently, trade settlement in most other major economies is completed within two days.

Last week, the Securities and Exchange Board of India said that the beta version of optional T+0 settlement will be launched for a limited set of 25 stocks, and with a limited set of .

The regulator will review the progress at the end of three months and six months, and decide on the further course of action.

“Such a transition is believed to offer numerous benefits, notably in the reduction of counterparty risk and the bolstering of market efficiency through the swift exchange of funds and securities between buyers and sellers,” said Rakeshh Mehta, chairman of Mehta Group - Mehta Equities.

Furthermore, it will also substantially lower operational expenses for market participants and reduce the that brokers face.

“T+0 settlement would help in freeing up brokers’ own funds within the system, thus, reducing overall cost of doing business,” said Shrey Jain, founder & CEO, SAS Online.

Currently, if a client sells shares, the amount is credited in the trading account instantaneously.

Client is free to trade with this capital or buy further delivery. On the exchange side, this fund gets credited to the broker only after settlement on T+1 basis.

However, with T+0 settlement, the funds would be received by the end of the day, thus, freeing up brokers’ capital involved in the business.

Besides, shifting to instant settlement will also increase liquidity in the market by encouraging investors to liquidate stocks instantly and convert into cash on the same day.

According to experts, it will also reduce counterparty risk that investors face in case of default or delay by the counterparty.

Instant trade settlement will also improve the efficiency and transparency of the Indian stock market by reducing the time lag between trade execution and settlement, say experts.

While this shift will transform the entire ecosystem, the process wouldn’t be easy, they added.

“Implementing this change would necessitate a comprehensive overhaul of the current market infrastructure, systems, and processes, entailing complex and potentially costly modifications to be made promptly,” Mehta said.

There are concerns that a shorter settlement cycle could increase market volatility. But, one for now needs to wait and watch whether the show tastes success.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)