The T+0 Revolution: A Game Changer For Indian Stock Markets?

Introduction:

In a significant development within the Indian equity cash markets, the Securities and Exchange Board of India (SEBI) on 21^st March 2024[1] introduced the Beta version of the T+0 rolling settlement cycle on an optional basis[2]. This move is built upon the existing T+1 settlement cycle[3], ensuring to reshape the way equity trading unfolds.

This decision stems from the progress of technology, architecture, and capacity within the Market Infrastructure Institutions (MIIs). The shift towards a shorter settlement cycle was initiated with the adoption of the T+1 cycle, which was fully implemented on January 27, 2023. This transition was made possible through collaborative effort involving stock exchanges, clearing corporations, and depositories, marking a milestone in the Indian securities market.

Explanation: From T+1 TO T+0

Imagine receiving trade funds almost instantly, eliminating the wait associated with the traditional T+1 cycle. This is the core promise of T+0 settlements. By accelerating the process, T+0 could significantly impact trading through:

Enhanced Efficiency: It increases transparency in associated costs which empowers investors to make more informed decisions, thereby improving the effectiveness of the trading experience.

Risk Management: SEBI’s move highlights its commitment to strengthening risk management practices within the market.Tighter timelines allow clearing corporations to better mitigate risks stemming from delayed transactions.

Operational Guidelines: Here’s what the framework outlines:

• Participant Eligibility: Any investor- if they meet the requirements set by brokers (MIIs).
• Monitoring Measures: Trades will be inspected closely, mirroring the existing system.
• Trading Window: The market will operate within a restricted timeframe, from 9:15 AM to 1:30 PM.
• Price Fluctuations: T+0 trades can occur within a +/- 1% range of the regular T+1 market price. This band adjusts dynamically as the T+1 price fluctuates.
• Market Impact: These trades won't influence major market indexes or settlement prices.
• Segregated Settlements: T+0 and T+1 settlements will be maintained separately to prevent confusion and minimize risks.

Limited Scope:  The Beta version of T+0 settlement shall initially be made available for a limited set of 25 scrips and, with a restricted number of brokers. This phased approach allows for controlled testing and evaluation of the new settlement cycle before broader implementation.

Regulatory Framework and Compliance Measures: This circular has been issued in accordance with the authority vested under Section 11(1) of the Securities and Exchange Board of India Act, 1992[4], along with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018[5]. Additionally, it is governed by Section 26(3) of the Depositories Act, 1996[6], and Regulation 97 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018[7].

Conclusion:

The T+0 Beta marks a noteworthy advancement in India’s equity cash markets. With its potential to enhance efficiency, transparency, and risk management, this initiative holds promise for investors, market participants, and regulators alike. As SEBI gathers stakeholder feedback and monitors the Beta phase, the future of T+0 settlement appears brimming with innovation and potential for expansion.

SEBI shall also proactively address common questions through Frequently Asked Questions (FAQs) alongside the operational guidelines.

[1] Circular No.: SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/20.

[2] https://www.sebi.gov.in/legal/

[3] Circular No.: SEBI/HO/MRD2/DCAP/P/CIR/2021/628.

[4] https://www.sebi.gov.in/sebi_data/attachdocs/1456380272563.pdf.

[5] https://www.sebi.gov.in/contracts-regulation-stock-exchanges.

[6] https://www.sebi.gov.in/sebi_data/attachdocs/1379572015818.pdf.

[7] https://www.sebi.gov.in/legal/regulations.