Understanding T+0 Settlement: A Game-Changer in Indian Securities Markets                            

Introduction to T+0 Settlement:

• Recently, the Securities and Exchange Board of India (SEBI) gave the green light for the introduction of the beta version of T+0 settlement on an optional basis.

What is T+0 Settlement?

• T+0 settlement signifies that the funds and securities involved in a transaction will be settled on the very day the trade was initiated. Contrastingly, in the current scenario, Indian securities markets operate on a T+1 settlement cycle, where the settlement occurs on the subsequent day of the trade. Over the years, there has been a gradual reduction in settlement periods, from T+5 to T+3 in 2002, further down to T+2 in 2003, and eventually to T+1 in 2021, with full implementation achieved by January 2023.

Advantages of T+0 Settlement:

• Instant Transaction Settlement: With T+0 settlement, investors can receive funds and securities immediately, thereby eliminating the risk of settlement shortages and providing investors with enhanced control over their funds and securities.
• Reduced Counterparty Risk: T+0 settlement is anticipated to lead to lower counterparty risk, fostering increased liquidity in the market.

Global Precedents:

• Several prominent exchanges such as the Moscow Exchange (MOEX), Korea Exchange (KRX), Taiwan Stock Exchange (TWSE), and Hong Kong Stock Exchange (HKEX) already offer T+0 settlements for specific types of trades and transactions.

Conclusion:

• The advent of T+0 settlement marks a significant stride in the Indian securities market, promising instantaneous transaction settlements and mitigated risks for investors. With global precedents already in place, this move is poised to enhance market liquidity and bolster investor confidence in India’s financial ecosystem.