Sebi introduces the T+1 settlement cycle on an optional basis

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In a move to enhance liquidity in the stock markets, capital market regulator Sebi on Tuesday said that the introduction T+1 settlement cycle for completion of share transactions on an optional basis will come into effect from January 1, 2022. The regulator has decided to provide flexibility to stock exchanges to offer either T+1 or T+2 settlement cycle for completion of share transactions, according to a circular.

The stock exchange may choose to offer T+1 settlement cycle on any of the scrips, after giving an advance notice of at least one month, regarding change in the settlement cycle, to all stakeholders, including the public at large, and also disseminating the same on its website.

“Sebi has kept the implementation optional at the exchange level, this looks very tricky. As what if one exchange decide a T+1 settlement and another exchange decide T+2 for the same securities. When the client can easily buy in one and sell in another exchange (after interoperability). It will be very interesting to wait and watch, how the two exchanges take this implementation and come forward for the shorter settlement cycle from the coming new year,” said Mohan Parsuramka, COO at Marwadi Shares and Finance.

Six-month tenure

After opting for T+1 settlement cycle for a scrip, the stock exchange will have to mandatorily continue with the same for a minimum period of six months. Thereafter, in case the stock exchange intends to switch back to T+2 settlement cycle, it will do so by giving one-month advance notice to the market.

Any subsequent switch (from T+1 to T+2 or vice versa) will be subject to minimum period and notice period as mentioned by the regulator. The decision has been taken based on discussions with market infrastructure institutions like stock exchanges, clearing corporations and depositories.

No netting

There shall be no netting between T+1 and T+2 settlements,” the Sebi said.

The settlement option for security will be applicable to all types of transactions in the security on that stock exchange. For example, if a security is placed under T+1 settlement on a stock exchange, the regular market deals as well as block deals will follow the T+1 settlement cycle on that bourse.

Sebi has directed stock exchanges, clearing corporations and depositories to take necessary steps to put in place proper systems and procedures for smooth introduction of T+1 settlement cycle on optional basis.

Earlier in 2003, the regulator had shortened the settlement cycle from T+3 rolling settlement to T+2.

Adoption of T+1 settlement would mean shortening the settlement cycle from two business days to one for India equities. The move is aimed to make stock markets more efficient as it will result into faster settlement of deals. It will increase liquidity, reduce risks in the system and may also increase the turnover.

“T+1 rolling settlement will allow client to receive the sale proceeds and the purchased shares in their account in 24 hours time as compare to 48hours in T+2 settlement. Similarly, the payment of funds and payin of stocks will also be done inT+1 day time in the new settlement cycle for the purchase and sale position respectively. Having a shorter payment cycle in any business is always good for business,” Parsuramka added.