On March 21, 2024, the Securities and Exchange Board of India (SEBI) issued a circular for a transformative shift in the stock market by introducing the T+0 settlement cycle.
This move is set to commence the T+0 rolling settlement cycle on an optional basis alongside the existing T+1 settlement cycle in equity cash markets. This initiative will initially cover a restricted set of 25 scrips and a limited number of brokers.
The T+0 rolling settlement cycle stems from recommendations by a working group comprising Market Infrastructure Institutions (MIIs), public feedback, and suggestions from SEBI’s Risk Management Review Committee. These provisions will come into effect on March 28, 2024.
The T+0 settlement cycle is an ambitious plan by SEBI to streamline trading operations, making the buying and selling of stocks in just one hour.
Back in the early 90s, the time it took to complete trades varied widely. Certain types of securities could take up to 14 days, and for others, 30 days. After that, you’d still have to wait another two weeks for everything to be finalised. So, you might have ended up waiting anywhere from 15 to 30 days just to see the outcome of your trade! Later, in 2002, this period was shortened to three business days.
Finally, reflecting the advancements of the digital age, in 2017, the SEC updated the transaction completion period to just two business days. In January 2023, the settlement period was further shortened to T+1 days. As of March 26, 2024, only two countries in the world, including India and China, offer T+1 trade settlements.
This makes the T+0 settlement process even more noteworthy in India, leading to quicker transfer of funds, improved operational efficiency, and quicker delivery of shares.
The introduction of T+0 is phased, with a clear strategy to include a wider range of stocks and participants over time, ensuring a smooth transition to this new system.
Initially, Phase 1 of the T+0 settlement cycle allowed trades made until 1:30 PM to be considered for same-day settlement by 4:30 PM. This phase also explored an optional trade-by-trade settlement system, extending trading time till 3:30 PM.
However, this initial phase was set to be discontinued after launching an optional instant settlement mechanism in Phase 2, focusing on real-time settlement for all investors, including those using custodians, thus broadening the scope and inclusivity of the T+0 settlement.
The second phase aims to integrate all investors into the real-time settlement process, overcoming the limitations of the first phase, which temporarily excluded custodial trades due to processing time constraints. This move is pivotal in democratising access to T+0 settlements, ensuring that every investor, irrespective of their trading mechanism or geographical location, can benefit from instant settlements.
Introducing the T+0 settlement opens a treasure trove of opportunities for investors. Immediate trade execution and settlement enhance the agility to capitalise on short-term market movements, offering a strategic edge in optimising investment portfolios in real-time.
This newfound flexibility not only facilitates efficient liquidity management but also encourages the adoption of active trading strategies, including day trading and scalping, to seize quick gains from price fluctuations. Moreover, adopting algorithmic and high-frequency trading strategies is likely to surge, leveraging the instantaneous nature of T+0 settlement for rapid executions.
One of the cornerstone benefits of T+0 settlement is its capacity to reduce settlement risk significantly. By eliminating the wait for trade confirmation and settlement, T+0 fosters a more secure and confident trading environment, smoothing the path for seamless trading experiences. This reduction in settlement risk is a leap forward in boosting investor confidence and market stability.
Everyone is welcome to join the T+0 settlement cycle if they follow the set schedules, procedures, and risk measures put forth by the Market Institutions.
There’s a fixed trading window: from 9:15 AM to 1:30 PM. Make sure all your trades fit into this time slot.
The same surveillance rules we use for the T+1 settlement will apply to stocks in the T+0 settlement, ensuring fairness and transparency.
For the T+0 market, there’s a price limit of plus or minus 100 basis points around the T+1 market price. If the T+1 price moves by 50 basis points, we’ll adjust these limits accordingly.
Prices from the T+0 market won’t be used in calculating stock indexes or figuring out the settlement price of shares. Also, there won’t be a separate closing price for shares traded in the T+0 segment.
These rules are in place to ensure that everyone can participate in a fair and straightforward way while also keeping the market safe and efficient.
On March 28, 2024, the BSE will roll out the T+0 settlement cycle with a beta version encompassing 25 stocks and a select group of brokers; it underscores its commitment to a careful and informed implementation.
The provision for trades between 09:15 AM to 1:30 PM IST under T+0, alongside the existing T+1 settlement, illustrates a thoughtful approach to integrating this new system.
With measures in place to mitigate market distortions, such as introducing a price band to manage discrepancies between the T+0 and T+1 cycles, SEBI is paving the way for a robust and resilient market structure.
The SEBI’s initiative to introduce the T+0 settlement cycle is a landmark move, poised to revolutionise the Indian stock market. By enhancing market efficiency, reducing settlement risks, and offering investors the agility to navigate market dynamics adeptly, T+0 settlement heralds a new era of trading.
As the market adapts to this innovative settlement cycle, the potential for growth and development is immense, promising an exciting future for investors and the broader financial ecosystem. Ready to be a part of the transformation? Open Demat account with Angel One today and leverage the T+0 settlement for better trading liquidity.
Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.
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