Context:
- Securities and Exchange Board of India (SEBI)is now planning to implement one-hour settlement of trades.
- Application Supported by Blocked Amount (ASBA)-like facility for trading in the secondary market will likely be launched in January 2024.
What is trade settlement?
- Settlement is a two-way process which involves the transfer of funds and securities on the settlement 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.
- The current cycle of T+1 means trade-related settlements happen within a day, or 24 hours of the actual transactions. The migration to the T+1 cycle came into effect in January this year. India became the second country in the world to start the T+1 settlement cycle in top-listed securities after China, bringing in operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.
What has SEBI said?
- On the way to instantaneous settlement, the one-hour trade settlement is much quicker to implement than instantaneous. So, if the instantaneous is going to take another 6-7 months, SEBI will implement one-hour trade settlement before that.
- The technology for implementation of one-hour trade settlement exists but for instantaneous trade settlement, the system needs some additional technology development, which may take more time.
What are the benefits of one-hour trade settlement?
- Under the current T+1 settlement cycle, if an investor sells securities, the money gets credited into the person’s account the next day. In one-hour settlement, if an investor sells a share, the money will be credited to their account in an hour, and the buyer will get the shares in their demat account within an hour.