Short and sweet – The Hindu BusinessLine

Clipped from:

The road-map for implementing the T+1 settlement appears practical and feasible

It is heartening to note that market infrastructure institutions — including stock exchanges, clearing corporations and depositories — are getting ready to roll out T+1 settlement in equities. SEBI had allowed MIIs to implement shorter settlement cycle in September, despite most other global exchanges still following longer T+2 settlement cycles. Activity on exchanges has grown strongly over the last two decades with the National Stock Exchange (NSE) ranking fourth globally in number of trades in cash equities segment in 2020. The move towards shorter settlements despite these huge volumes is a sign of the technological robustness of the market infrastructure. That said, care should be taken to avoid technical glitches during the transition period. Also quicker settlements could lead to increase in trading activity on the bourses; regulator should take care that smaller investors, especially those who have entered the market since last year, are sufficiently aware of the risks they are taking while trading in stocks.

Shorter settlement cycles reduce risk and help release investor funds faster, due to which most global exchanges are working towards this. While the move is good for the long-term growth of markets, it could spur speculative activity as funds can be churned faster under this system. The regulator must increase its investor awareness drive to make smaller investors aware of the risks in trading and to nudge them towards long-term investing. The phased roll-out over 12 months will give ample time to players to change their back-office systems and be ready when the larger and more voluminous stocks move to shorter settlements. Exchanges, clearing corporations and depositories must do enough dry runs to ensure that there are no disruptions to market operations.

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