Indian equities are set to move towards faster settlement cycle by switching to T+1 system. Starting Friday, January 27, Indian equities will be settled on a ‘trade-plus-one-day’ timeline versus the earlier two-day (T+2) process. T+1 means that the settlement relating to market trade needs to be concluded within one day of the actual transaction taking place.
India is one of the first countries in the world to go for such a fast trade settlement cycle, which puts itself ahead of the US. T+1 agreement It was recently proposed by the US Securities Exchange Commission (SEC) with an implementation timeline of 24 months.
The US SEC has sought views of stakeholders on moving to a single-day settlement cycle and a Bloomberg report suggests that an industry body in Europe is discussing the same.
The Securities and Exchange Commission (SEC) last year proposed rule changes to reduce risk in securities clearance and settlement, including two business days after the trade date for most broker-dealer transactions in securities. Including shortening the standard settlement cycle. T+2) up to one business day after the trade date (T+1). The regulatory body said in a paper that the proposed changes are designed to reduce the credit, market and liquidity risks in securities transactions faced by market participants and US investors.
“Shortening the settlement cycle should reduce the amount of margin that counterparties would need to post with the clearing house,” SEC Chairman Gary Gensler said in a paper last year. “As the old saying goes, time is money.”
Indian capital market regulator Securities and Exchange Board of India (SEBI) on September 07, 2021 permitted stock exchanges to introduce T+1 settlement cycle from January 01, 2022 on any securities available in equity segment. From February 2022, the transition to T+1 is taking place in batches based on market cap (smallest to largest).
All large-cap and blue-chip companies will switch to T+1 system on January 27. The switch to T+1 settlement comes 20 years after capital markets regulator SEBI reduced the settlement period from T+3 days in 2003. For T + 2 days.
(with inputs from agencies)
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