Mkt players positive on T+1 settlement cycle

It is an investor centric step. Even mutual fund (MF) investors will get benefited. Now, equity funds get credited in 3 days which may be possible in 2 days. But there are challenges on the operational and technical side, says a senior market expert

Mumbai: The capital markets regulator Sebi has decided to provide flexibility to stock exchanges, to offer either T+1 or T+2 settlement cycle. Experts have welcomed regulator's move. Still, they have pointed out certain measures so as to make it more effective.

Stock Exchange may choose to offer a T+1 settlement cycle on any scrip, after giving advance notice of at least one month.

After opting for a T+1 settlement cycle for a scrip, stock exchanges shall have to mandatorily continue with the same for a minimum period of six months. There shall be no getting b/w T+1 and T+2 settlements.

In other words, stock markets can soon transfer shares and money into client accounts in under 24 hours with Sebi set to usher in a T+1 (trading day plus one) settlement cycle for equity transactions from January 1, 2022.

As per the existing system (T+2), it takes 48 hours or more for the shares to be transferred into the client account in case of purchase deals.

"It is an investor centric step. Even mutual fund (MF) investors will get benefited. Now, equity funds get credited in three days which may be possible in two days post the move . But there are challenges on the operational and technical side," Prakash Praharaj, founder, Max Secure Financial Planners, told Bizz Buzz.

Asked what happens if one exchange opt for T+1 and other T+2, he said brokers need more working capital. Banks and depositories have to align their working hours.

It needs more coordination between brokers. custodians, clearing members and the exchanges, if the pay-ins and pay-outs don't get settled and the settlement spills over, he added.

The Sebi circular, issued on last Tuesday, says that it has been receiving requests from various stakeholders to further shorten the settlement cycle.

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.

Stock exchanges, clearing corporations and depositories are directed to take necessary steps to put in place proper systems and procedures for smooth introduction of the T+1 settlement cycle on optional basis, including necessary amendments to the relevant bye-laws, rules and regulations, it added.

In fact, Sebi had been looking to introduce T+1 settlement for more than a year but was hampered by the pandemic. Discount brokers and online new-age tech trading firms have been pushing for a quicker settlement cycle. Most online stock-brokers have very few staff as they rely on technology that enables contactless trading and settlement. Almost all trading, post-trading query and settlement of transactions by these brokers are done through mobile applications where clients punch their own trades and transfer money to various accounts at the click of a button.