SEBI introduces T+1 settlement Cycle: The market regulatory authority is on a spree of making regulatory changes announcements.
After the recent changes in the Margin Trading Rules, they have come up with new announcements regarding the settlement SEBI rules in the Indian Equity market ecosystem. The SEBI has proposed a T+1 trade settlement cycle.
But before understanding the new proposed SEBI rules, let us try and understand the existing Settlement rule.
The System of T+3 rolling settlement rule was introduced in the Indian capital market in April 2002, which was further shortened to T+2 rolling settlement rule w.e.f April 01, 2003.
What is T+2 Rolling Settlement?
|1||T||The day Trade takes place|
|2||T + 1||By 1.00 pm||Completion of custodial confirmation to Clearing corporation/clearing houses (CC/CH)|
|3||T + 1||By 2:30pm||Completion of the process to brokers/custodians by CC/CH|
|4||T +2||Till 10:30 am||Accept Payin Instructions from investors into pool account|
|5||T + 2||By 10:30 am||Submit the final details to the depository and clearing bank|
|6||T + 2||By 1:30pm||Pay-out the securities and finds to respective parties|
So, under the existing regime of settlement, the securities and cash is exchanged between the parties on the third day (technically).
What is the T+1 settlement rule proposed by SEBI?
The SEBI on 7th September 2021 has laid a proposal for T+1 (trade plus one day) rolling settlement cycle for stocks on an optional basis. The new SEBI rules will come into force from January 1, 2022.
These new rules have been adopted after SEBI got multiple requests from various stakeholders concerning the shortening of the settlement cycle.
The SEBI in its circular also mentioned, “Based on discussions with Market Infrastructure Institutions (Stock Exchanges, Clearing Corporations and Depositories), it has been decided to provide flexibility to Stock Exchanges to offer either T+1 or T+2 settlement cycle”
The Rules Set forth by SEBI
The circular issued by SEBI has mentioned that a stock exchange can choose to offer T+1 settlement cycle on any scrip to all stakeholders after giving an advance notice of one month with regards to change in the settlement cycle.
SEBI further also notified that the exchange which switches any security to T+1 settlement cycle has to abide by changes for a minimum period of six months.
And if the exchange again wants to switch back to T+2 settlement period, then they will again have to give notice one month in advance.
The change in settlement rule could bring a lot of joy to market participants as the transaction will be settled one day earlier.
But there are still a few questions that remain unanswered, like what if the same share trades in two exchanges and one (exchange) adopts the T+1 settlement and the other still follows T+2 settlement rule?
Only time will tell as to how these concerns get addressed. But one thing is for sure, the market regulator (SEBI) is in full swing to bring about changes that auger well for the Indian financial sector.
We hope you found this post interesting and learned quite a bit about SEBI’s new T+1 settlement cycle. Please use the comment box below to share your opinions on the article “SEBI introduces T+1 settlement Cycle”
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!