India's SEBI is the first to introduce Instantaneous (T+0) settlement cycle.

SEBI Chairperson Madhabi Puri Buch has made an exciting announcement about the introduction of an instantaneous settlement timeline on India's stock exchange. This announcement coincides with SEBI's decision to move to a T+1 settlement cycle for all scrips, starting from October 1, 2023. Under the T+1 settlement cycle, investors selling securities will have the money credited to their accounts the next day, resulting in faster and more efficient securities settlement processes.

During a press conference on Monday, Buch expressed her optimism about achieving instantaneous settlement on the stock exchanges. SEBI is actively working with the ecosystem to develop a mechanism that will facilitate real-time settlement of transactions on the stock exchanges in the future.

The upcoming T+1 settlement cycle will apply to all scrips, not just the most popular ones, further enhancing the efficiency of India's capital markets. Previously, on January 27 this year, the stock markets transitioned from the T+2 settlement cycle to the T+1 regime for popular equities, covering about 200 of India's largest listed companies, comprising 80% of the country's equity market.

As of October, all scrips will follow the T+1 settlement cycle, encompassing various securities like stocks, debt instruments, REITs, InvITs, and ETFs, which were previously under the T+2 settlement cycle.

The trading settlement process involves delivering purchased securities to the buyer and transferring the money to the seller. In the past, trades on the Indian stock exchanges settled in two working days after the transaction (T+2). With the introduction of the T+1 settlement cycle, market trade-related settlements will need to be cleared within one day of the actual transactions taking place. This shift, which made India the second market after China to adopt the T+1 system, is expected to bring operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.

SEBI's future vision revolves around the T+0 settlement cycle, which aims to enable investors to sell shares and instantly receive the money in their accounts, while buyers receive the shares in their demat accounts on the same day. This transformation is expected to enhance liquidity for traders and investors, ultimately leading to increased trading volumes.

The implementation of the T+0 settlement cycle is anticipated to eliminate waiting periods for settlements, allowing investors to seize short-term trading opportunities by immediately reinvesting sale proceeds. Additionally, this development is expected to reduce risks associated with defaults on margins offered by stockbrokers, streamlining the investment experience for investors.

The success of the T+0 settlement heavily relies on the efficiency of the ASBA (Application Supported by Blocked Amount) infrastructure. Existing delays in the system hinder the speed and volume of capital formation and introduce potential financial risks throughout the entire value chain. SEBI's plans hinge on the success of the newly introduced ASBA for secondary market transactions. Buch is confident in the system's progress, emphasizing that the natural next step is instantaneous settlement, following the integration of ASBA for secondary markets.

Buch, an investment banker-turned-regulator, emphasizes the critical importance of timing in capital markets, highlighting how delays can significantly impact the economy's capital formation, which falls under SEBI's core mandate. To achieve this vision, SEBI has been actively working on reducing processing times for various activities, such as clearing equity issuances and facilitating fundraising endeavors through new mutual fund schemes. The strategic implementation of technology tools plays a pivotal role in expediting processes and benefiting the investor community.

SEBI's diligent monitoring of turnaround times and the allocation of additional resources are driving efforts to create a seamless and efficient market ecosystem. As SEBI's plans unfold and India's capital markets continue to evolve, investors can look forward to faster settlements and enhanced opportunities for growth and prosperity.