Context: Recently, the Securities and Exchange Board of India (SEBI) announced the introduction of a new, optional settlement cycle, termed T+0 settlement, following a meeting with its Board.

• SEBI approved the launch of a Beta version of optional T+0 settlement for a limited set of 25 scrips and a restricted group of brokers.

About T+0 settlement Cycles

• T+0 settlement means that the funds and securities for a transaction will be settled on the day the trade was entered into.

• In the T+0 settlement, investors selling their stocks will receive money on the same day as the sale, instead of the current T+1 process, where the trades are settled on the next trade day.

T+1 process

• Under the T+1 settlement cycle, most securities transactions will settle on the next business day following their transaction date.

• For example, if an investor sells shares of a stock on Tuesday, the transaction will be settled on Wednesday.

Expected Benefits of Shorter Settlement Cycles

• Shorter settlement cycles are anticipated to mitigate counterparty risk and increase market liquidity.

• It is expected to provide more flexibility to clients in terms of faster pay-out and give them more control over their funds.

• It will free up capital and thereby enhance market efficiency, and enhance overall risk management for clearing corporations (CCs).

Global Adoption of T+0 Settlement

• While T+0 settlement is less common, several international markets offer it for specific securities.

• Examples include the Moscow Exchange (MOEX) and Korea Exchange (KRX) for certain securities in Russia and South Korea.

• Taiwan Stock Exchange (TWSE) offers T+0 settlement for government bonds and selected Exchange-Traded Funds (ETFs), while Hong Kong Stock Exchange (HKEX) provides T+0 settlement for specific transactions, particularly bonds.

Evolution of Settlement Cycles in India

• Indian securities markets have progressed from T+5 to T+3 in 2002, further to T+2 in 2003, and recently to T+1 in 2021, with the final phase completed in 2023.

• T+0 settlement will now be offered alongside T+1, providing market participants with greater flexibility and control over their transactions.