SEBI has decided to short the business a settlement The cycle despite strong resistance from some stakeholders in the stock market. The regulator has initiated the process of reducing the settlement cycle from T+2 mode to T+1 for all shares in the cash segment. However, SEBI has given stock exchanges at liberty to initiate it on alternative basis shares of their choice. This change is effective from January 1, 2022, said a circular from the regulator.
On 1 April 2003, the Indian market moved from a T+3 cycle to a T+2 settlement cycle. Currently, most of the markets around the world follow the T+2 system.
“SEBI is receiving requests from various stakeholders to further shorten the settlement cycle. Based on discussions with market infrastructure institutions (MIIs – Stock Exchanges, Clearing Corporations and Depositories), it has been decided to provide flexibility to stock exchanges to offer T+1 or T+2 settlement cycles,” the regulator said. The circular said.
Accordingly, an exchange may offer a T+1 settlement cycle on any share after giving one month’s notice about the change, it said. However, SEBI said once an exchange decides to move a stock in a T+1 cycle, it has to continue for at least six months. If he decides to switch the shares back in the T+2 cycle, he should give at least one month’s notice.
Once a stock is moved to a T+1 cycle on an exchange, it will be applicable to all transactions on that exchange. This means that for all trades – be it a regular, small trade by a retail investor or a block deal by a large institution – the settlement must be under the T+1 cycle on the exchange.
SEBI has directed all MIIs to take necessary steps to put in place proper systems and procedures for smooth commencement of the T+1 settlement cycle.
Last week, the Association of National Exchange Members of India (Anmi) – a pan-India brokers body – wrote to SEBI not to start the T+1 settlement cycle. According to AnamiFor smooth running of such a system, there may be operational and technical challenges at multiple levels including banks, back offices of brokers, depositories and other bodies involved in trading, settlement and post-settlement processes.
However, industry sources said that under the T+1 cycle, technology-driven discount brokerages would be at an advantage as compared to those that have not yet adopted the technology on a large scale for regular operations. AMI is dominated by traditional brokers.
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