Settlement Cycle

Why in the news?

Securities and Exchange Board of India (SEBI) introduced beta version of T+0 rolling settlement cycle on optional basis in addition to the existing T+1 settlement cycle in Stock Markets. 

More on News

• Settlement Cycle refers to the period within which securities and funds are delivered and settled after a trade is executed between a buyer and a seller.
  • Traditionally, Indian exchanges followed a T+2 settlement cycle, meaning trades were settled in two business days after the trade execution date (T).
    • T+2 was shifted to T+1 (1 day settlement) in January 2023.
  • T+0 Settlement Cycle refers to a system where Settlement of trades shall happen on the same day after the closure of market.

Reasons for shift to shorter settlement cycle

• Evolution: The significant evolution of technology, architecture and capacity of Market Infrastructure Institutions or MIIs (stock exchanges, clearing corporations and depositories), presents opportunities for further advancing clearing and settlement timelines.
• Becoming a Global leader: To ensure that India's market infrastructure emulates the global best practices.
• Efficiency: It will bring cost and time efficiency.

Impact of shorten settlement cycle

• Enhanced Liquidity Management: This allows investor to reinvest proceeds or deploy capital into new opportunities without waiting for settlement cycles.
• Increased Trading Opportunities: Investors can react quickly to market developments, execute trades promptly, and optimise their investment strategies in real-time.
• Reduced Settlement Risk: T+0 settlement eliminates the need to wait for an additional day for trading confirmation and settlement.
• Global Competitiveness: Adopting a T+0 settlement cycle can attract foreign portfolio investors (FPIs).