News Excerpt:

The BSE and NSE introduced trading in the T+0 rolling settlement cycle in the equity segment on an optional basis today.

Key Points:

• This move comes following the capital markets regulator's introduction of a framework for the beta version of the T+0 trade settlement cycle on an optional basis earlier this month.
• Among the stocks eligible for the T+0 settlement cycle are Ambuja Cements, Ashok Leyland, Bajaj Auto, Bank of Baroda, BPCL etc.
• Initially, this option will be accessible for a select set of 25 scrips and with a limited number of brokers. 
• This initiative aims to provide an additional settlement cycle option alongside the existing T+1 in the equity cash market.
• India's transition to 'T+1' from 'T+2' was completed in March 2023, in three phases. 
• A shorter settlement cycle requires changes in the infrastructure of trading operations for brokers. 
• It also requires certain approvals for foreign institutional investors. 
• Now, within a year of transitioning to 'T+1', the market is moving towards a same-day settlement cycle for trades.
• Currently, Indian equity markets follow the T+1 settlement system, where stocks and funds are settled the day after the trade.
• To start with, the new trade settlement system will run in tandem with the existing T+1 cycle in the equity cash market. 
• It will be applicable for 25 stocks and only select brokers can participate in the new system, according to the regulator.

About T+0 segment

• In December 2023, the capital markets regulator SEBI proposed to introduce a facility for clearing and settlement of funds and securities on T+0 (same day) on an optional basis, in addition to the existing T+1 settlement cycle. 
  • The regulator has also proposed to introduce optional instant settlement at a later stage.
• Under the T+0 trade cycle, the settlement of trades will happen on the same day after the closure of the T+0 market. 
  • If investors sell a share, they will get the money credited to their account the same day, and the buyer will also get the shares in their demat account on the very day of the transaction.
• The price in the T+0 segment will operate with a price band of +100 basis points (1 percentage point) from the price in the regular T+1 market. 
• This band will be re-calibrated after every 50 basis points movement in the underlying T+1 market, Sebi said in a circular.
• The regulator added that T+0 prices will not be considered in index calculation and settlement price computation. 
• Besides, there would be no separate closing price for securities based on trading in the T+0 segment.

What are the benefits of T+0 trade settlement?

• A shortened settlement cycle will bring cost and time efficiency, transparency in charges to investors, and strengthen risk management at clearing corporations and the overall securities market ecosystem.
• But also stands to substantially mitigate transactional risks, offering an immediate and tangible value to both traders and investors alike.
• The T+0 trade cycle is expected to provide flexibility in terms of faster pay-out of the funds against the securities to the sellers and faster pay-out of securities against the funds to the buyers. 
• It will allow better control over funds and securities by the investors.
• For the securities market ecosystem, a shorter settlement cycle will further free up capital in the securities market, thereby enhancing the overall market efficiency. 
• It will enhance the overall risk management of Clearing Corporations (CCs) as the trades are backed by upfront funds and securities.

Who can participate in the T+0 settlement cycle?

• All investors are eligible to participate in the segment for the T+0 trade settlement cycle if they are able to meet the timelines, process and risk requirements as prescribed by the Market Infrastructure Institutions (MIIs).

What are the trade timings? What will be the price band in the T+0 trade cycle?

• For the optional T+0 settlement cycle, there will be one continuous trading session from 09:15 AM to 1:30 PM. 
• The settlement of funds and securities will be completed on the same day by 4:30 PM.
• The price band in the T+0 segment will operate with a price band of +100 basis points from the price in the regular T+1 market. 
• This band will be recalibrated after every 50 basis points movement in the underlying T+1 market.

Conclusion:

Hence, the initiative marks a critical step in aligning India's trading infrastructure with global standards, paving the way for a stronger, risk-averse, and dynamic market ecosystem. It will lend opportunities for quicker liquidity.