India’s equity markets are on a significant step of evolution in trade settlement procedures. On March 11, the Securities and Exchange Board of India ( SEBI ) announced its plans to introduce an optional T+0 settlement system starting March 28 in a phased manner. This move will enable same-day settlement of equity cash trades for select investors.
T+0 Settlement Initiative – Explained
The essence of SEBI’s proposal is to facilitate same-day settlement of trades within the stock market, allowing for immediate transfer of funds and securities between buyers and sellers. Under the T+0 settlement, investors selling their stocks will receive funds on the same day of the transaction, contrasting with the current T+1 process where settlements occur on the following trading day.
T+0 Settlement – Implementation
SEBI’s plan unfolds in two phases. Initially, an optional T+0 settlement cycle will be available for trades until 1:30 pm, with settlements of funds and securities completed by 4:30 pm on the same day. Subsequently, a second phase will introduce an optional immediate trade-by-trade settlement for funds and securities, allowing trading until 3:30 pm. Following this implementation, the first phase of optional T+0 settlement will be phased out.
T+0 Settlements – Operations
SEBI Chairperson Madhabi Puri Buch explains that the T+0 settlement will be an alternative parallel process applicable to non-custodian or non-institutional clients. Initially, T+0 settlements will be offered for the top 500 listed equity shares based on market capitalization, distributed across three tranches. This phased approach will begin with 200, followed by another 200, and conclude with 100 shares, progressing from the lowest to the highest market cap.
The concept of T+0 settlement contrasts with the previous practice of batch settlements spanning multiple days. Previously, trades executed between Monday and Friday were settled collectively on a specified date, which often constrained market liquidity due to extended cash withholding periods. This practice was discontinued following SEBI’s intervention in 2002, which ushered in the rolling settlement system.
Rolling settlements
A rolling settlement denotes the process wherein security trades are settled continuously rather than on fixed dates. Introduced by SEBI in July 2001, the rolling settlement replaced the fixed settlement cycle, which had been criticized for delivery issues, trader distrust, and frequent defaults. By December 2001, all listed companies transitioned to a T+5 settlement cycle, which was subsequently reduced to T+3 in April 2002 and further to T+2 in April 2003. In September 2021, SEBI permitted stock exchanges to introduce a T+1 settlement cycle for securities in the equity segment, effective January 1, 2022. With the influx of equity investors in recent years, SEBI’s new settlement framework is poised to benefit traders by streamlining transaction processes and enhancing market efficiency.
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