Introduction of T+1 Rolling Settlement Cycle

SEBI Circular

SEBI, wide its circular dated 07.09.2021 has introduced the T+1 rolling settlement on optional basis by providing facility to the stock exchanges to offer either T+1 or T+2 settlement cycle for a particular script.  Before changing the settlement cycle of any script to T+1 or to revert it back to T+2, a one month notice is to be given regarding such change to all the stakeholders including public at large. As per the circular, the settlement cycle so changes should continue for a minimum period of 6 months.

 The provisions of the circular are to come into effect from 1^st January 2020. The market infrastructure institutions i.e. stock exchanges, depositories and clearing houses have to strengthen their infrastructure for the implementation of T+1 cycle.  

Issues needing consideration

Although the step towards introduction of T+1 rolling settlement is a step much awaited and would enhance market liquidity but there are certain issues which need consideration and to be taken care of before the implementation including the following:

1. If both the bourses/exchanges doesn’t work in uniformity, there will be confusion in the market and also interoperability benefit will not be available.
2. The majority FPIs invested in Indian markets are based out of USA. The time zone difference can pose challenges. Also, time zone management would be needed for Investors investing from across the globe and different time zones.
3. With the T+1 settlement not available across scrips, an investor buying a scrip of T+1 and selling a scrip of T+2 will have to pay upfront and will not get fungibility benefit.

Conclusion

Overall, in our view T+1 settlement is the only way forward and for the betterment of the securities market although regulator need to address the challenges/questions in advance to reduce confusion and chaos in the market.

Deepika Vijay Sawhney

Founder

Transique Corporate Advisors

Disclaimer:

The information contained in this note is provided for informational purpose only and is not intended to substitute for professional advice. The author expressly disclaim any financial or other responsibility arising due to any action taken by any person on basis of this note.