Context: Securities and Exchange Board of India (SEBI), is planning to implement one-hour settlement of trades from the existing T+1 settlement.

What is trade settlement?

• Settlement is a two-way process that involves the transfer of funds and securities on the settlement date. As of now, there is a lag between trade and settlement — the settlement date is different from the trade 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.

T+1 settlement

• The current cycle of ‘T+1’ in India means trade-related settlements happen within a day, or within 24 hours of the actual transaction. The migration to the T+1 cycle came into effect in January 2023.

• India became the second country to start the T+1 settlement cycle in top listed securities after China, bringing operational efficiency, faster fund remittances, share delivery, and ease for stock market participants.

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.

Benefits of One-Hour Trade Settlement

• In the current T+1 settlement cycle, the seller receives funds in their account the day after a trade.

• With one-hour settlement, the seller would receive funds within an hour of selling shares, and the buyer would have shares in their demat account within an hour.

• The move is expected to increase volume in the cash segment as one would be able to move from one stock to another on the same date instead of waiting for settlement of one's trade after one day or two days.

What is a Demat Account?

• A Demat Account or Dematerialised Account provides the facility of holding shares and securities in an electronic format.

• During online trading, shares are bought and held in a Demat Account, thus facilitating easy trade for the users.

• It holds all the investments an individual makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one place.