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SEBI: SEBI Chairman said - work is being done on immediate settlement in stock market transactions

Pankaj Prasad
SEBI Chairman Madhabi Puri Buch
SEBI Chairman Madhabi Puri Buch

In late January this year, India started following the market-wide Transaction+1 (T+1) settlement system for equities. Previously, it was in the T+2 cycle.

SEBI Chairman Madhabi Puri Buch on Monday said that the financial markets regulator is working on a mechanism for instant settlement of transactions at stock exchanges. "Certainly one of the things that we think is not too far off is an immediate settlement for the stock exchange," Buch said at a press conference.

We are working on it, we are in tune with this environment and we believe that in the near future we will have a mechanism that will facilitate instant settlement of transactions on stock exchanges, he added. We are going in this direction.

In late January this year, India started following the market-wide Transaction+1 (T+1) settlement system for equities. Previously, it was in the T+2 cycle. The new T+1 system was first introduced by the markets regulator, the Securities and Exchange Board of India (SEBI), in 2021 and has been implemented in a phased manner from the smallest companies to the largest companies based on market capitalization.

T+1 system means that the transaction should be completed within a day or 24 hours. For example, under T+1 if an investor has bought shares on Monday, the money will be credited to the client's demat account on Tuesday. Once instant settlement is implemented, money will come into the hands of investors on a real-time basis.

Financial markets regulator SEBI's board had last month approved a proposal to reduce the time period for listing of shares of a company through an initial public offering (IPO) to three days from the existing six days. Sebi had said the revised timeline would be implemented in two phases - voluntary for all IPOs opening on or after September 1, 2023, and mandatory for those opening on or after December 1, 2023. SEBI said that the decision to halve the days has been taken after extensive consultation with all the stakeholders.

It has been extensively tested to confirm that the transition to T+3 will be smooth. The reduction in IPO listing timelines is expected to be beneficial, as issuers will receive more funds and allottees will receive their securities in a shorter time period. Further, the customers who were not allotted shares will get their money back immediately and the resources of all the stakeholders – such as stock exchanges, banks, depositories, brokers in the public issue process will be deployed in the market for a short period.