Trading in Fast Forward: SEBI Proposes Same-Day Stock Settlement in India

The Securities and Exchange Board of India (SEBI) is aiming to revolutionize the Indian stock market by introducing same-day settlement for stock trades. This ambitious plan, proposed in a recent consultation paper, outlines a two-phased approach:

Phase 1: (Targeted for March 2024)

• Optional T+0 settlement: Investors can choose to settle trades by the end of the same day (4:30 PM) for trades placed before 1:30 PM. This is faster than the current T+1 system, where settlement happens a day after the trade.
• Limited scope: Initially, only the top 500 listed stocks will be eligible for T+0, gradually expanding in phases.
• Benefits: Increased capital efficiency, reduced counterparty risk, and potentially more active trading.

Phase 2: (Targeted for 2025)

• Optional instant settlement: Trades will be settled as soon as they occur, aiming for near real-time completion.
• Further restrictions: This phase might only offer instant settlement for limit orders with pre-validated funds.
• Benefits: Enhanced market transparency, reduced systemic risk, and potentially closer alignment with global markets.

Reactions and Challenges:

• Market participants: SEBI's proposal has received mixed reactions. Some welcome the move, while others express concerns about operational complexities and potential market volatility.
• Technological infrastructure: Implementing instant settlement requires significant upgrades to existing systems and robust technological infrastructure.
• Investor education: Investors need to be well-informed about the new settlement options and navigate the complexities effectively.

Overall, SEBI's initiative represents a significant step towards modernizing the Indian stock market and making it more competitive globally. However, successful implementation will require careful planning, collaboration with market participants, and effective investor education.