T+0
SETTLEMENT - ECONOMY
News:
SEBI chief says instant
settlement of trades in the works: What does it mean, and how will investors
benefit?
What's
in the news?
● The
securities market regulator has said it is working on real-time settlement of
transactions in India’s stock exchanges.
● The
announcement by Madhabi Puri Buch, chairperson of the Securities and Exchange
Board of India (SEBI), came after the regulator shortened the settlement cycle
to trade-plus-one (T+1) from T+2.
Settlement:
● ‘Settlement’
is a two-way process that involves the transfer
of funds and securities on the settlement date.
● As
of now, there is a lag between trade and settlement — the settlement date is
different from the trade date.
● A
trade settlement is said to be complete once purchased securities of a listed
company are delivered to the buyer, and the seller gets the money.
Current
T+1 Cycle:
● The
current cycle of ‘T+1’ in India means trade-related settlements happen within a
day, or within 24 hours of the actual transaction.
● The
migration to the T+1 cycle came into effect in January this year.
India's
Progressiveness:
● India
became the second country to start the
T+1 settlement cycle in top listed securities after China, bringing
operational efficiency, faster fund remittances, share delivery, and ease for
stock market participants.
T+0
(Real-time Settlement):
● SEBI
has said it is working on a plan for “instantaneous”
settlement of trades in the securities market.
● In
future, we will have a mechanism which will facilitate instantaneous settlement
of transactions on stock exchanges.
● Same-day,
or ‘T+0’, settlement of trades will be possible with the real-time payment system — Unified Payments Interface (UPI), online
depositories, and technology stack.
What
will change for investors with T+0?
● Under
the current T+1 settlement cycle, if an investor sells securities, the money
gets credited into her account the following day.
● Under
the T+0 settlement cycle, if investors sell shares, they will get the money in
their account instantaneously, and the buyers will get the shares in their DEMAT
accounts the same day.
● The
investor’s money will not get stuck with brokers or stock exchanges, they will
get the money on the same day after the transactions happen.