👍Universalising T+1 settlement, a welcome step – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/editorial/universalising-t1-settlement-a-welcome-step/article66435618.ece

Faster trade settlement makes it more convenient for investors and reduces settlement risk considerably

 The Indian market will henceforth be the fastest in trade settlement | Photo Credit: VIVEK BENDRE

The settlement of almost all trades in Indian stock market on a T+1 basis from today, is worth lauding as it shows the technological prowess and the execution ability of the Indian market infrastructure institutions and the vision of stock market regulator, Securities and Exchange Board of India (SEBI). The Indian market will henceforth be the fastest in trade settlement, with the shares being transferred to the buyer’s demat account and the funds landing in the seller’s bank account a day after execution of the trade.

With only the Chinese stock market having introduced T+1 settlement partially, Indian markets will be more efficient and secure than other markets. Faster trade settlement makes it more convenient for investors and reduces settlement risk considerably. The market regulator was right in moving ahead with implementation of the T+1 settlement, despite protests from domestic as well as foreign intermediaries and investors. The settlement time had remained at two days from trade execution day, since 2003. The implementation of the shorter settlement cycle of T+1 has spanned almost one year, beginning last February when 100 stocks with the smallest market capitalisation were moved to the new cycle. Thereafter, 500 more stocks were added each month. The transition so far has been smooth, and it helped that stocks that have moved to the shorter settlement have lower trading volume. It has now been notified that the remaining stocks in the T+2 cycle along with all stocks with futures and options attached to them will be moved to T+1 cycle from today.

Therefore, the largest stocks in terms of market capitalisation as well as trade volume will be trading with shorter settlements from Friday. With the top 100 stocks accounting for around 60 per cent of market volume, there is likely to be some short-term volatility and impact on market volumes as traders and investors adjust to the new system. This disruption is likely to settle down in a few days and trading glitches, if any, will also reduce over time. The long-term benefits far outweigh any short-term discomfort.

The market regulator is doing the right thing in harnessing the technological capability of market infrastructure institutions to implement a series of regulatory changes to improve investor experience and security. Interoperability in clearing wherein the investor could choose one clearing corporation to settle his trades irrespective of the exchange on which the transaction was executed, made it easier for clients to manage their trading margins and collaterals. This was also a pioneering move by India. The proposal to allow investors to block the funds in bank accounts for secondary market stock trading is yet another change which can help shield investors from intermediaries with malafides. With the investor participation surging during the pandemic and more tech-savvy investors entering the market, this is the right way to retain these investors as well as to increase their number.

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